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Off-Grid Electricity in Myanmar:Asian Rural Development Fund (ARDF)
Consulting
Leon Spruth, Philip Ter Meer, Sem de Moel
ConsultingAgenda
1. Overview &Problem Identification
2. Our Plan
4. Business Model
3. Financing Streams
Myanmar Overview Electrification Problem Electrification Problem -
Financing
Financing Streams Donors, Investors &
Intermediaries Investees
Mission & Objectives Our Approach: Developing
off-grid Previous cases &
Learnings
5. Conclusion
Business Model Data Outcome Impact Measurement -
Metrics
Conclusion
Overview &Problem Identification• Mynamar Overview• Electrification Problem• Electrification – Financing
1
FiM Regional Market Presences
Office
Europe:• Armenia • Bosnia and Herzegovina• Georgia • Kenya• Kosovo• Luxembourg • Macedonia • Moldova • Montenegro• Serbia• Turkey• Ukraine
South-America:• Colombia
Africa:• Egypt
How about Myanmar?
ConsultingMyanmar Overview
• 50 years of isolation and military rule
• Midst of progressive political reforms
1) Micro Hydro Workshop Proceedings: Dr. Xiaoping Wang, World Bank2) United Nations: Human Development Reports3) Asian Development Bank: Development Economics and Indicators
• Promising results, improvement expected in: a) economic b) social indicators c) regulatory and institutional frameworks5)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0%
5%
10%
15%
Myanmar East Asia & Pacific (developing only)
• High Impact, rapid growth potential1)
• Wealth of natural resources, young workforce, and good strategic position as trading hub5)
• GDP per capita (2011): $8572)
• HDI (2015): 148/1872)
• Poverty margin: 26%3)
4) World Bank: Global Economic Prospects5) PWC: Myanmar Business Guide6) Khin Seint Wint, Ministry of Electric Power, November 24th, 2014
• Annual GDP (Δ) expected around 8%4), • Economy will quadruple by 20307)
• Very low electrification rate: 32%6)
• Much lower in rural areas• National Electrification Program (NEP)
• Improvement of life quality• Fostering long-term economic growth• Significant investments needed in energy
and infrastructure sector7) McKinsey Report, 2013
New Government (Civilian rule)1)
Economic and Impact Potential
Electrification Problem
ConsultingElectrification Problem
59%20%
11%
4%4%
2% Remaining VillagesGeneratorsNational GridSolarMicro-HydropowerBiomass/Biogas
1) Ministry of Livestock, Fisheries and Rural Development, Department of Rural Development, January 20152) www.geni.com Global Energy3) Center for Strategic and International Studies: Myanmar's Path to Electrification, Rachel Ross
Rural Electrification Program 1) National Grid System2)
• Only minority of 51m people have access to grid
• Electricity access concentrated in cities 4) :Yangon (78%), Kayah (46%), and Manadalay (40%) in contrast to Kayin (6%), Tanitharyi (9%), and Ayeryawady (11%)
• Only 40% of rural villages (26.000) have access to electricity and 13,000 use generators1)
• Of electrified villages, less than half of households receive electricity sufficient to charge electronics for several hours a day2)
4) Ministry of Electric Power: Electrification rates as of December 2013
ConsultingElectrification Problem - Financing
Further funding is needed to fully electrify Myanmar:▪ NEP only financed $550m of total $700m
required for first 5 years1)
▪ Ministry of Livestock, Fisheries and Rural Development seeking private investment for off-grid projects2)
• €5.4bn total investment potential on off-grid electricity, measured by SLP
• Currently only €58m planned expenditure by NEP until 20303)
1) Department of Rural Development & MOLFRD, Rural Electricity Access, 20152) World Bank, Myanmar: Achieving Universal Access to Electricity, 20153) Castalia Advisors, Myanmar National Electrification Program (NEP) Roadmap and Investment Prospectus, 2014
NEP Fi-
nanced79%
Addi-tional
In-vest-ment
Needed21%
National Electrification Plan Financing1)
Off-Grid Investment Potential
Electrification Plan Financing (FY ‘16-’19)
Investment Potential in off-grid (FY ’18 – ’30) NEP
Com-mitted Funds
1%Private
In-vest-ment
Oppor-tunity99%
Our Plan• Mission & Objectives• Our Approach: Developing off-
grid • Previous cases & Learnings
2
Consulting
The Asian Rural Development Fund (ARDF) aims to provide access to electricity to (poor) people in rural areas in Myanmar and other developing countries in South East Asia, through indirect long-term financing of sustainable off-grid electricity solutions such as solar home systems and micro hydro-plants to villages & SMEs. In corporation with local banks and MFIs,
providers of renewable off-grid energy solutions will identify, realize and supervise suitable investment projects in rural areas that will be financed by the Development Fund. Increasing the
access to electricity by promoting renewable energy solutions leading to higher living standards, creating jobs and new business opportunities and fostering economic growth while
decreasing emissions.”
Mission & Objectives
ConsultingDeveloping Off-Grid Projects
Determine willingness/
ability to pay
Feasibility testing (design,
resources)Arrange funding
Implementation and
training
Potential and demand
assessment
Maintenance and after-
sales
1
2
34
5
6
Suggested Approach
1 – 3: Technical and Commercial DD, 4: Financing, 5 – 6: Technical Support
Foster collaboration for DD (1 – 3)• Cross-functional cooperation
between local loan officers and local power suppliers
Become a market maker (4)• Fund (FiM) brings local
financial intermediaries, power suppliers, and local villages together
Provide technical support (5 – 6)• Power supplier lays foundation
for future growth and better life conditions
Steps
ConsultingPrevious Cases / Lessons Learned
1) Overseas Development Institute, Turning on the Lights, 20142) Meyers et al., Prospects for the Power Sector in Nine Developing Countries, April 1993
MyanmarGDP Growth: 8.5%Electricity Growth: 12.8%
Vietnam1)
1990 – 2010GDP Growth: 5.6%Electricity Demand Growth: 12.5%Turning the Lights On (97% coverage from 14%)• Sustained Policy
Commitment• Local-Level
Implementation• Donor Support
Indonesia2)
1980-1990GDP Growth: 3.6%Electricity Demand Growth: 13.4%Only achieved 54% coverage• Environmental
Regulations• Ignored rural
communities (Diesel generators)
Financing Streams• Financing Streams• Donors, Investors &
Intermediaries• Investees
3
ConsultingFinancing Streams
Pub Donors/Investors
Creator of Fund
MFIs
PACT Global Microfinance FundDawn Microfinance
Banks
Rural Development Bank
Myanmar Agriculture
Development Bank
Power Suppliers
Local Rural Villages
Investees
Donors and Investors
Private Investors
Churches
Municipalities
Private investors
Financial Intermediaries
ConsultingDonors, Investors & Intermediaries
• Already involved in rural development in Myanmar
• Provided €7m grant to NEP1)
• Involved in rural electrification programs Asia wide
• Provided $172m in off-grid electrification for NEP2)
• Focused on off-grid renewable energy development
• Provided grants for technical assistance on solar/hydro sys.3)
• Grants for consulting on mini-hydro and solar power
• Committed €8m to NEP3)
• RDB already provides loans to rural villages for electricity
• Fund technical assistance3)
• Countrywide network with regional offices
• Provide agriculture credit to rural villages4)
• Biggest MFI fund in Myanmar funding solar system purchases
• Work with 9 Myanmar NGOs to develop ops. in remote areas5)
• Leading for-profit MFI developed by Triodos Bank6)
• Goal to become large financial services provider to low income
1) KfW, Myanmar: A country undergoing transition, 20162) World Bank, Myanmar: Achieving Universal Access to Electricity, 20153) Department of Rural Development & MOLFRD, Rural Electricity Access,
2015
4) Myanmar Agriculture Development Bank, Law5) Center for Strategic and International Studies: Myanmar's Path to Electrification, Rachel Ross6) Triodos Bank, Investing in Myanmar, 2015
ConsultingInvestees
Local villagers coming together to work on projects. Receive technical assistance from donors. Install and service systems in their region1)
Provide and service solar home systems in Myanmar. Agents located throughout the country. Actively aim to participate in nation development.2)
Vietnamese small Hydropower Systems company providing affordable and reliable energy to developing countries and remote locations. Shown high interest in working with Finance in Motion on off-grid electricity development3)
Provider of hybrid power solutions to mobile base stations. Orders in Myanmar worth 17m Euro. 500 energy systems for expansion of mobile network4)
Private Companies
VECVillage Electrification
Committee
1) Department of Rural Development & MOLFRD, Rural Electricity Access, 2015
2) Asia Solar Co Ltd, Company Profile, 2013
3) Powerpal, Affordable Technology for all Countries4) Heliocentris Energy Solutions AG, 2016
1. Local Rural Villages 2. SMEs
Business Model• Business Model• Data• Outcome• Impact Measurement - Metrics
4
ConsultingBusiness Model
• FiM creates ARDF• Receives interest
repaymentFinance in MotionFiM Asian Rural Development Fund
Local MFIs / Banks
Set-Up Distribution / Service Network
Rural Households
• Provides debt to MFIs/banks Receives interest repayment
margin
• Invests in solar/hydro systems • Collects 23% cap monthly revenue
• Distribute and service systems• Paid for initial product instalment and
monthly payments for service
• Pay set monthly fee for use of electricity
Grants: Technical Assistance and Service Costs
ConsultingBusiness Case - Data
Solar Home System
Micro Hydro Powerplant
Price for 0,5kw inc. installment mark up (20%) in EUR 331 477Payback period for 0,5kw off grid power plant in years 7,0 7,0Monthly repayment inc. installment mark up (20%) in EUR 3,9 5,7Monthly repayment inc. installment & expected cumulated 7-year inflation (35%) in EUR 5,3 7,7Monthly repayment inc. installment, inflation & profit margin and risk mark up (100%) in EUR 10,6 15,3Total repayment (in EUR) 893 1.063
No. Of technicians 25 25Installation rate per village per technician per year 10 6No. Of households supplied per year 29.523 17.714Cummulated investment potential from 2018-2030 (in EUR) 222.139.737 192.333.535Total no. of households that gained access to electricity through project until 2030 383.795 230.277
Market PotentialNo. villages in rural areas without/expensive and dirty access to electricity 51.648Average households per village 118
No. Households in rural areas without access to (or clean/affordable) electricity 6.1mTotal market potential for off-grid solutions in 2018 (in EUR) 3.2bn
Total market potential for off-grid solutions in 2030 (in EUR) 5.4bn
2018
2020
2022
2024
2026
2028
2030
010,000,00020,000,00030,000,00040,000,00050,000,000
Annual Investment Volume
EU
R
Data
ConsultingBusiness Case - Outcome
=((0,5*500+4,18+14+35)/1,1)*1,2
Battery 12v 200Ah for SolarFOB Price: $4.182)
Solar Panel 500WFOB Price: $2502)
Solar off-grid inverterFOB Price: $142)
LED TV/DVD, 11.6”FOB Price: $353)
Cost of solar system (0.5kW) per household = 331€ ≙ 3.28€ per month (7 year repayment period)
0
5
10
15
9.3€
Cost for candles & torches1)
1) UN development program, Human Development report 2015, 2) www.Alibaba.com, 3) Sanook, Thailand, 4) Appendix – Powerpal Email
Cost for solar system2,3) Costs for hydro system4)
Average monthly payment
15.3€
0
5
10
15
4,7€
1,0€2,0€
7,7€
Monthly payment for systemInstallment-mark up (20%)35% Inflation costs
10.6€
0
5
10
15
3,3€0,7€1,4€
5,3€
Monthly payment for systemInstallment-mark up (20%)35% Inflation costs
ConsultingImpact Measurement - Metrics
Access to ElectricityNo. of households/SMEs that gained access to electricity
Reducing EmissionsAmount of fossil fuel/CO2 saved by new sustainable energy solutions
Job CreationNo. of created jobs related to planning, excecuting and maintaing energy systems
Renewable EnergyNo. of newly created off-grid energy systems
Social Impact Environmental Impact
Targets 2030• 600,000 households gained access to electricity• Increased access to electricity in rural areas by 10%
Conclusion5
ConsultingSummary
Electricity shortage in MyanmarLittle focus on off-grid solutions in rural areas
ScalabilityPotential to expand into Mobile Payment Network, work with local entrepreneurs
Provide off-grid solutions to 600,000 householdsor 10% of rural area, until the completion of National Electrification Plan grid network
Finance in Motion creates ARDF fund to finance solar/hydro systems in rural villages
Engage with local MFIs/banks as intermediaries to roll-out the systems\
Appendix6
ConsultingRollout plan - Scalability
Rollout Plan for the next seven years
1) Asian Development Bank, Myanmar: Energy Sector Initial Assessment 2) Center for Strategic and International Studies: Myanmar's Path to Electrification, Rachel Ross 3) Myanmar Times: Stay tuned for mobile banking services from Yoma and Telenor
Installed >1000 rice-husk gasifiers to power rice mills
1. Local entrepreneurs1)
Planned Planned Is- Is- %Acitvitiy Start Time Begin Time Done 2016 2017 2018 2019 2020 2021 2022
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Identify investment opportunity 1 2 1 1 100%Analysis & due diligence 2 3 - - 0%Investment structuring 2 3 - - 0%Technical and commercial DD for off-grid energy 3 26 - - 0%Arrange Funding 4 25 - - 0%Monitoring & reporting 4 25 - - 0%Additional investment opportunities
Local entrepreneurs 6 23 - - 0%Larger industrial power suppliers 7 22 - - 0%Fintech companies (mobile payment) 10 21 - - 0%
Marked time range: 1 Planned Is % done
Heliocentris (GER), Gen-eration (US), Flexenclosure (SW) set up in Myanmar
2. Large power suppliers2)
Yoma and Telenor are setting up mobile banking services
3. Mobile payment providers3)
ConsultingRisk Exposure – PPP Structure
Notes
Senior Shares
Junior Shares
Churches Municipalities Private investors
Ris
k E
xpos
ure
Institutional and private investors
International Financial Institutions
Donors
ConsultingRisk Assessment
Political Risk
• Risk of changing regulations – little/no regulation in rural areas
• Changes in government• Corruption• Relations with China –
Energy deal between the nations
Economical Risk
• Inflation• Repayment risks• Default risk of power
suppliers• Default risk of financial
intermediaries
ConsultingLocal Solar Firms1)
Name of Company Type of product/ service offered
Number of staff
solar sector experience
SHS built to date
Sourcing of components for DRD SHS
Revenues (Thousand US$/year)
Expected increase FY2014-5
Moe Ko San Solar SHS and mini-grids 33 2 years 780 Korea, China 160 200%
T & t Co. Ltd SHS and mini-grids. Solar street lamps 20 1.75 years 2722 China 80 1000%
Asia Solar From pico-solar products to projects > 10 kW
170 5 years 7822 China >1,000 >200%
Earth Renewable Energy Company SHS, 1-3 kW systems 25 12 years 3700 China 1,000 40%
Myanmar Mahar Htun SHS6 involved in PV. (60 total)
None 0 China 233 N/A
SolaRiseSys PV for telecom, SHS, mini-grids, lanterns 50 4 years 10208 China not divulge not divulge
1) Department of Rural Development & MOLFRD, Rural Electricity Access, 2015
ConsultingPowerpal Email
Dear Sem, Leon and Philip.Thank you for your thought-provoking email about a possible venture to provide electricity to remote rural households in Myanmar, a country where I have worked as a mineral exploration geologist some years ago. By sheer coincidence we are currently involved in discussions in Papua New Guinea (PNG) with an Australian company in an attempt to find support from Government sources to install some of our micro-hydro systems in remote settlements that will never be served by the national grid due to their inaccessible locations. However, I can see that your direction with regard to funding is unlike our own as it would call upon the likes of ourselves as the supplier of the generation systems to carry some significant level of risk and also to become active in matter of fee collection in order to repay loans to local banks/MFI (I am unfamiliar with the term MFI – please clarify).But first to your questions: We are a small company and do not have access to the funds necessary to take on the credit risk involved in supplying the equipment free to the local communities. In order to find the necessary funding for projects of the type you are considering, on occasion we have enlisted the assistance of NGOs, Missionary groups, local Government agencies and even agencies of the World Bank. Then our role is simply to supply the necessary equipment, usually at a discounted rate, to the funding source who then finds knowledgeable local people to oversee the installation and maintenance. So you can see that our role has little or no risk involved and that is the way we have to operate. For example, we recently supplied a T2H micro-hydro system for a remote site in northern Laos that was paid for and installed by the French aid group “Electriciens sans Frontieres”.If the risk was underwritten by local banks, then we could become involved as we have done elsewhere quite successfully. To give you some idea of our specially discounted prices for less developed nations, I have attached a current price list, but please be aware that these prices are all set at the gate of the factory in Hanoi, Vietnam, and there would be additional delivery costs by ocean freight to Yangon, plus local import duties and associated port clearance costs at the Myanmar end of the journey from Hanoi.I have never heard of Finance in Motion, yet I assume that they have had some experience in less developed countries like Myanmar where the locals would have had virtually no previous exposure to the business side of paying for the use of some electricity. A lot of time will have to be spent on education with regard to equipment maintenance, and also to fee collection, and this once more is not the sort of activity that in which we get involved. I doubt if any of you have ever spent much time in the remote parts of Myanmar, and I do happen to know the primitive conditions in which the locals usually live, many of whom are uneducated to any but the lowest levels. Poverty is widespread. It may even emerge that their subsistence levels of income will not allow payment for the power that they would choose to consume. Fortunately, in parts of PNG there are thriving agricultural sectors, namely coffee, copra and palm oil, plus employment in mining activities, which translate into some levels of disposable income among the local growers and mining company employees.This letter is probably not very helpful to you all, but, nevertheless I am trying to find a way that we could become involved for our primary objective when we started this company in 1998 was to try to help the disadvantaged people living in remote parts of developing countries by introducing some relatively inexpensive electric power from a renewable energy source into their lives. The near fatal flaw in our business plan was, put purely and simply, the fact that these good people just do not have enough money to buy even our smallest micro-hydro generator, nor had they ever seen any of the low head propeller turbines that are so widespread in Vietnam – see photo.Kind regards, David Seymour