Webinar - Financing for Solar Offgrid Businesses The webinar began with David Renne introducing ISES, and speaking on the challenges of financing the universal access goal, and noting that universal access would also require transformations in energy distribution, and that this would require a transformation in the workforce in order to implement and maintain the new access giving infrastructure. He noted that providing access through renewable would mean that energy that was freely available to the community could be tapped, and that this would support local job creation. Debajit Palit, TERI acted as moderator. Debajit introduced the Lighting for All Working Group, noting that all the panelists were part of the WG, and reviewing the WG’s activities, giving the examples of community empowerment in BAN, their work with Picosol/ Camworks on solar lamps in CAM, the solar lantern charging model they introduced in INO and the training of trainers done with CARD MRI in PHI.

Debajit also talked about the Energy for All website, and how it worked to link innovative ideas to financing, and also spoke on the annual Energy for All Investor Forum held during ACEF.

The panelists: Ashis Kumar Sal, SELCO; Ajaita Shah, Frontier Markets, and; Aimthy Thoumoung, Micro Energy Credits were introduced wih Ashis Kumar Sal being the first to present.

Ashis gave a background on SELCO, noting that they work for underserved populations everywhere – whether in rural or urban areas and even serve the middle class. As a pure social enterprise that is service focused and whose specialty is customized solar lighting, SELCO offers solutions, not products, and offer door step service.

He noted that they market their products as a utility investment rather than consumption/ direct income expenditure.

SELCO does not really work with MFIs due to fixed financial products that do not suit their system, but they do work closely with regional/ rural banks.

Ashis shared two of SELCO’s models

Solar Light Point Project: created to serve urban street hawkers which SELCO realized have no access to electricity. This project involved promoting an entrepreneur who bought solar panels and small batteries and then charged those batteries and distributed them to street hawkers in the evening for use in light point.

The same entrepreneur would then collects batteries at end of night for charging and use the next day.

Service fees are collected on a daily/ weekly basis.

The Entrepreneur owns the program - end-user gets a service not as an ownership making this project an exception to the SELCO rule where customers have ownership.

Light for Education Programme: Inspired by program to feed students a mid day meal so their attendance in school increases.

This model gives students a battery when they come to school to use for their light point back home – charging is done during studying hours, ensuring that kids need to come to school to charge the battery.

Ashis stated that this project is mostly donor driven – but that it could be sustainable at marginal fees/ of the equivalent to one dollar a month.

He then answered a common question about SELCO’s work:

“How do we scale up?” Ashis stated that after seventeen years, SELCO was still working in one state, with small presence in neighboring states and that they would rather be effective than scaled up.

However, they aimed to scale themselves in a different way by focusing on the very poor/ digging deeper into socio economic strata.

Such an approach will mean SELCO must work on technological challenge and new financing mechanisms.

SELCO’s idea of scale is to create numerous SELCOs – through their incubation center.

The incubation center’s value proposition is that all of SELCOs experience will be transferred to new and existing energy enterprises

Ajaita Shah, Frontier Markets was second to present.

Ajaita talked about capital structure for last mile distribution companies focusing on clean energy.

She stated that Frontier Market’s focus is marketing, sales, after sales service and trying to understand rural households so that product solutions could be brought based on that their understanding.

She stated that it was necessary to develop innovative marketing and service centers that focus on ongoing sales, service, constant interaction to create accountability and trust – and that trust was key to understanding next big need of communities.

She reviewed Frontier Markets investment history and current status - focusing on their numbers, growing into an ideal model for replication, and currently with three service centers, targeting selling six thousand solar products through Rajasthan, and the creation of thirty to forty franchisees.

The bulk of her discussion was on types of capital and the time period which a start-up would most benefit from them, briefly from order of early financing to later financing, and the mitigation of risk measures associated with each: 1. Grants are high risk and are best used for testing time, and to learn from failures with an attempt to mitigate potential failures through clearly designed concepts, 2. Convertible notes - either converted to equity or written off - this funding from angel investors helping with proof of concept. Mitigation here is through tangible financials, and the setting of milestones towards market validation 3. Convertible debt – offered when they (Frontier Markets) were considered medium risk and already able to show what they could create. 4. Equity - came during a growth stage (equivalent to series A). Mitigation here was done through growth history, and ability to show numbers to attract capital as well as plans going forward. 5. Line of credit – noted as the hardest attract at the early stage, and that (for ex.) solar product manufacturers cannot provide it. But lines of credit played a very important role – to allow distributors to take more changes, set better terms, greater volume. Frontier Markets currently receives credit from foundations and they funnel it into franchises to help them meet demand they've created. 6. Debt – is only brought in when the organization is at lowest risk, (small) profits coming in. Debt is for an organization that recognizes that no one else should take on risk but themselves.

Aimthy Thoumsoung presented on carbon funds for affordable solar products. He offered solutions to the main problems faced by SMEs in scaling up clean energy programs:

1. Making the product affordable to low-income / BOP consumers 2. Investing in marketing awareness generation activities 3. Investing in after-sales customer service programs

Aimthy noted that if you decrease up-front cost of product, you increase target market greatly and that carbon financing can do what rural banks are unwilling to - provide small low-ticket loans. Micro Energy Credits builds the capacity of banks to utilize carbon revenues – my impression was they act like our Technical Support Facility in this regard. Aimthy also reported that marketing and awareness generation and investing in after sales service were done with carbon revenue.

Q&A Ashis fielded the first set of questions: Q: (Missed actual question, but an organization from outside India asked if they could partner with SELCO) A: (SELCO doesn’t partner) outside india, but they could join the incubation program. Q:What kind of batteries used in school program? A: Typical mobile phone size batteries - very small and light. Ensures that children can carry them easily Q: How do you handle ownership problems? A: There's very clear ownership, and where there’s clear ownership, people take care of their systems. Because a household buys it, then they care for it as an asset. Lighting systems are seen as the second biggest asset after the house itself. Ashis also stated that while SELCO has insurance, he’s found it adds no value. Ajaita answered the next set of questions: Q: How do they assess risk of rural solar ventures? And what is the community interest rate? A: Assuming it’s the risk of a manufacturing company, Frontier Markets has a process funnel to identify the ideal product – this ideal is shaped by feedback from households. Her example was that farmers had told that that they need a focused box light that can last six hours, to give them high powered lighting when they watch their fields at night. Frontier Markets then does the research to find a manufacturer. Then they do a qualitative check on product, compared to price points, then do a soft launch, allow customers to give feedback (user testing). Based on reactions, they then decide if it's a good idea to bring in product. Much like SELCO, Frontier Markets don’t work directly with MFIs - they work through franchisees to provide credit. But now they're looking at larger systems - but they have questions - do they fit with the MFI? Or are they a better fit with rural banks, and the wholesale providing of lines of credit themselves, through banks or possible combinations. Aimthy took questions regarding carbon revenues especially. Q:How do they register these various projects to CDM seeing as the registration is very expensive. A: That is the value add of Micro Energy Credits - that's their value add. They have registered Program of Activities (POA) for an entire country, meaning they do not have to register each and every project separately. That's enabled them to be faster, more cost effective with regards to CDM. Debajit spoke on a few points, regarding his experience with Lighting a Billion Lives. He stated that in his experience is that a market is not found, instead an enterprise offers a good product along with good service. Affordability is not a big issue to rural households – but these households need assurance that there is maintenance available. In the last few months, they’ve facilitated more than forty energy enterprises throughout India selling a range of products. Q: A question was raised about carbon financing and the drop in the carbon market - how do these massive changes in the market change potential? Aimthy answered that MEC's value add is that they take on the upfront costs associated with the carbon market, and that he was confident about CDM viability going forward. He stated that there are two kinds of carbon market, compulsory and voluntary. Compulsory market is

turbulent, but analysts see that its prices will start to increase back to the eight to ten dollar range. The voluntary carbon market is the kind of market that MEC has been tapping. All their carbon revenues come from the voluntary market, which is more independent from changes in global carbon markets – the voluntary market essentially looks for high quality carbon credits generated from good projects. Ajaita expanded on her answer to "How do you assess the risk of a solar venture?" stating that there’s a lot of embedded cost to distribute solar products, which is not readily apparent when looking at pricing/ margins for products. Frontier Markets doesn’t just look at buying at a certain cost up front and then delivering, but they build product ecosystems – and there’s a lot of costs associated. They look at solar ventures, look at risk, and they try to understand the manufacturer’s pricing. In closing she stated that distribution companies could work to understand these expanded costs better.