Secure Financial Feasibility - Revision history

Sophia Schneider at 14:44, 9 January 2024

2024-01-09T14:44:58Z

Sophia Schneider at 14:43, 9 January 2024

2024-01-09T14:43:11Z

Sophia Schneider: /* Project financing through carbon finance */

2024-01-09T14:19:03Z

Project financing through carbon finance

Sophia Schneider: /* Existing tools */

2024-01-03T10:26:27Z

Existing tools

Sophia Schneider at 10:25, 21 November 2023

2023-11-21T10:25:09Z

Sophia Schneider: /* Target financing that is suitable for the maturity of your company */

2023-09-25T13:13:32Z

Target financing that is suitable for the maturity of your company

Sophia Schneider at 13:05, 25 September 2023

2023-09-25T13:05:58Z

Sophia Schneider at 09:10, 19 September 2023

2023-09-19T09:10:02Z

Sophia Schneider: Sophia Schneider moved page Securing Financial Feasibility to Secure Financial Feasibility without leaving a redirect

2023-09-18T07:39:35Z

Sophia Schneider moved page Securing Financial Feasibility to Secure Financial Feasibility without leaving a redirect

Hector Alfaro at 11:27, 13 September 2023

2023-09-13T11:27:04Z

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 ==== Results-based financing (RBF) ====
-RBF is a public funding mechanism by which disbursements by a funder to a recipient are conditional on the achievement of predetermined results. It involves three key features: (i) payments are made when the pre-agreed results have been achieved, (ii) the recipient has agency over how to achieve these results, and (iii) results need to be independently verified to cause a payment <ref>GOGLA (2023). Unlocking Off-Grid Solar: How Results-Based Financing is driving energy access and powering productivity. https://www.gogla.org/wp-content/uploads/2023/11/How-Results-Based-Financing-is-driving-energy-access-and-powering-productivity.pdf</ref>.
+[[Results-Based Financing|RBF]] is a public funding mechanism by which disbursements by a funder to a recipient are conditional on the achievement of predetermined results. It involves three key features: (i) payments are made when the pre-agreed results have been achieved, (ii) the recipient has agency over how to achieve these results, and (iii) results need to be independently verified to cause a payment <ref>GOGLA (2023). Unlocking Off-Grid Solar: How Results-Based Financing is driving energy access and powering productivity. https://www.gogla.org/wp-content/uploads/2023/11/How-Results-Based-Financing-is-driving-energy-access-and-powering-productivity.pdf</ref>.
 RBF is a way for the private sector to leverage funding from governments and development partners to achieve development goals, such as increasing access to electricity. Over the past decade, RBF programmes have been piloted, scaled up and diversified in the energy access sector. In Nigeria, it became a common mode of grant disbursement which is used under the Nigeria Electrification Project (NEP) and the REF <ref>GIZ (2021). Nigeria Financing Instruments for the Mini-Grid Market. GET.transform. https://www.get-transform.eu/wp-content/uploads/2021/08/Success-in-Rural-Electrification-Case-Study_Nigeria.pdf</ref>.

@@ Line 92: / Line 92: @@
 RBF is a public funding mechanism by which disbursements by a funder to a recipient are conditional on the achievement of predetermined results. It involves three key features: (i) payments are made when the pre-agreed results have been achieved, (ii) the recipient has agency over how to achieve these results, and (iii) results need to be independently verified to cause a payment <ref>GOGLA (2023). Unlocking Off-Grid Solar: How Results-Based Financing is driving energy access and powering productivity. https://www.gogla.org/wp-content/uploads/2023/11/How-Results-Based-Financing-is-driving-energy-access-and-powering-productivity.pdf</ref>.
-RBF enables governments and development partners to leverage the private sector to achieve development goals, such as increasing electricity access. Over the past decade, RBF programmes have been piloted, scaled up and diversified in the energy access sector. In Nigeria, it became a common mode of grant disbursement which is used under the Nigeria Electrification Project (NEP) and the REF <ref>GIZ (2021). Nigeria Financing Instruments for the Mini-Grid Market. GET.transform. https://www.get-transform.eu/wp-content/uploads/2021/08/Success-in-Rural-Electrification-Case-Study_Nigeria.pdf</ref>.
+RBF is a way for the private sector to leverage funding from governments and development partners to achieve development goals, such as increasing access to electricity. Over the past decade, RBF programmes have been piloted, scaled up and diversified in the energy access sector. In Nigeria, it became a common mode of grant disbursement which is used under the Nigeria Electrification Project (NEP) and the REF <ref>GIZ (2021). Nigeria Financing Instruments for the Mini-Grid Market. GET.transform. https://www.get-transform.eu/wp-content/uploads/2021/08/Success-in-Rural-Electrification-Case-Study_Nigeria.pdf</ref>.
 ==Existing tools==

← Older revision		Revision as of 14:19, 9 January 2024
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	The VCM is a market mechanism that enables businesses, governments, and individuals to purchase carbon credits to offset their greenhouse gas (GHG) emissions voluntarily. These carbon credits are generated by projects that reduce or remove emissions, such as renewable-energy projects <ref name=":5">USAID (2023). Carbon Credits for Off-grid Solar in Sub-Saharan Africa. https://scms.usaid.gov/sites/default/files/2023-11/Power-Africa-Carbon-Credits-for-OGS-Companies.pdf</ref>. To expand Africa's share of the global carbon-credit market, the [https://africacarbonmarkets.org/ Africa Carbon Markets Initiative] (ACMI) was launched in 2022. Off-grid solar firms can participate in Africa's VCM in many ways. One approach is to create their own carbon projects, which, though involving a longer timeline and higher initial costs, can minimize risks once carbon credits are issued. Alternatively, companies can join data-driven carbon programs like CarbonClear, leveraging real-time consumption data from pay-as-you-go-enabled devices for a quicker and more cost-effective entry into the carbon market. However, standards from the International Carbon Reduction and Offset Alliance do not currently recognize digital strategies to participate in the VCM. Consequently, companies must consider trade-offs to select a model aligned with their financial situation, installation portfolio, and market preferences<ref name=":5" />.		The VCM is a market mechanism that enables businesses, governments, and individuals to purchase carbon credits to offset their greenhouse gas (GHG) emissions voluntarily. These carbon credits are generated by projects that reduce or remove emissions, such as renewable-energy projects <ref name=":5">USAID (2023). Carbon Credits for Off-grid Solar in Sub-Saharan Africa. https://scms.usaid.gov/sites/default/files/2023-11/Power-Africa-Carbon-Credits-for-OGS-Companies.pdf</ref>. To expand Africa's share of the global carbon-credit market, the [https://africacarbonmarkets.org/ Africa Carbon Markets Initiative] (ACMI) was launched in 2022. Off-grid solar firms can participate in Africa's VCM in many ways. One approach is to create their own carbon projects, which, though involving a longer timeline and higher initial costs, can minimize risks once carbon credits are issued. Alternatively, companies can join data-driven carbon programs like CarbonClear, leveraging real-time consumption data from pay-as-you-go-enabled devices for a quicker and more cost-effective entry into the carbon market. However, standards from the International Carbon Reduction and Offset Alliance do not currently recognize digital strategies to participate in the VCM. Consequently, companies must consider trade-offs to select a model aligned with their financial situation, installation portfolio, and market preferences<ref name=":5" />.
		+
		+	==== Results-based financing (RBF) ====
		+	RBF is a public funding mechanism by which disbursements by a funder to a recipient are conditional on the achievement of predetermined results. It involves three key features: (i) payments are made when the pre-agreed results have been achieved, (ii) the recipient has agency over how to achieve these results, and (iii) results need to be independently verified to cause a payment <ref>GOGLA (2023). Unlocking Off-Grid Solar: How Results-Based Financing is driving energy access and powering productivity. https://www.gogla.org/wp-content/uploads/2023/11/How-Results-Based-Financing-is-driving-energy-access-and-powering-productivity.pdf</ref>.
		+
		+	RBF enables governments and development partners to leverage the private sector to achieve development goals, such as increasing electricity access. Over the past decade, RBF programmes have been piloted, scaled up and diversified in the energy access sector. In Nigeria, it became a common mode of grant disbursement which is used under the Nigeria Electrification Project (NEP) and the REF <ref>GIZ (2021). Nigeria Financing Instruments for the Mini-Grid Market. GET.transform. https://www.get-transform.eu/wp-content/uploads/2021/08/Success-in-Rural-Electrification-Case-Study_Nigeria.pdf</ref>.

	==Existing tools==		==Existing tools==

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 |Yes
 |The toolkit includes one module that focuses on challenges and needs in financing mini-grids. It explains (1) different sources of capital for mini-grid projects, (2) financial instruments that are available to cover the costs of building a mini-grid, (3) what sources of grants or concessional financing exist to help with mini-grids in developing countries, and (4) who will finance the needed upgrades to the main grid if mini-grids are integrated with the centralized grid.
 |}
+*

← Older revision		Revision as of 10:25, 21 November 2023
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	There are several finances existing, which provide technical assistance or capacity building support, to ensure an efficient management of the funding the companies raised (i.e. All On Hub, AECF). [http://creedsenergy.com/en/ CREEDS Energy], a Solar Home System (SHS) developer established in 2012, won the Nigerian Off-Grid Energy Challenge among others in the SHS category in 2018. In addition to funding, technical assistance by the United States African Development Fund (USADF) and governance support from the impact investment company All On was provided. Through the technical assistance CREEDS was able to develop a financing application. In 2021, CREEDS signed the Output-Based Fund agreement with REA under the Nigeria Electrification Project (NEP). The grant that CREEDS has received helped to leverage other financial resources for scaling-up<ref>Uzoho, P. (2018) ''Ten Off-grid Energy Companies Selected for USADF Funding'', ''This Day''. Available at: <nowiki>https://www.thisdaylive.com/index.php/2018/10/18/ten-off-grid-energy-companies-selected-for-usadf-funding/</nowiki> (Accessed: 26 September 2022).</ref>.		There are several finances existing, which provide technical assistance or capacity building support, to ensure an efficient management of the funding the companies raised (i.e. All On Hub, AECF). [http://creedsenergy.com/en/ CREEDS Energy], a Solar Home System (SHS) developer established in 2012, won the Nigerian Off-Grid Energy Challenge among others in the SHS category in 2018. In addition to funding, technical assistance by the United States African Development Fund (USADF) and governance support from the impact investment company All On was provided. Through the technical assistance CREEDS was able to develop a financing application. In 2021, CREEDS signed the Output-Based Fund agreement with REA under the Nigeria Electrification Project (NEP). The grant that CREEDS has received helped to leverage other financial resources for scaling-up<ref>Uzoho, P. (2018) ''Ten Off-grid Energy Companies Selected for USADF Funding'', ''This Day''. Available at: <nowiki>https://www.thisdaylive.com/index.php/2018/10/18/ten-off-grid-energy-companies-selected-for-usadf-funding/</nowiki> (Accessed: 26 September 2022).</ref>.
		+
		+	==== Project financing through carbon finance ====
		+	[[Carbon Finance\|Carbon finance]] is a way for entrepreneurs to generate an additional source of revenue by creating a commercial value for reducing greenhouse gas emissions. This so-called carbon finance can be accessed by implementing a project under the requirements of the '''[https://unfccc.int/process-and-meetings/the-kyoto-protocol/mechanisms-under-the-kyoto-protocol/the-clean-development-mechanism Clean Development Mechanism] (CDM)''' of the Kyoto Protocol or for the '''Voluntary Carbon Market (VCM) that generates carbon credits.'''
		+
		+	The VCM is a market mechanism that enables businesses, governments, and individuals to purchase carbon credits to offset their greenhouse gas (GHG) emissions voluntarily. These carbon credits are generated by projects that reduce or remove emissions, such as renewable-energy projects <ref name=":5">USAID (2023). Carbon Credits for Off-grid Solar in Sub-Saharan Africa. https://scms.usaid.gov/sites/default/files/2023-11/Power-Africa-Carbon-Credits-for-OGS-Companies.pdf</ref>. To expand Africa's share of the global carbon-credit market, the [https://africacarbonmarkets.org/ Africa Carbon Markets Initiative] (ACMI) was launched in 2022. Off-grid solar firms can participate in Africa's VCM in many ways. One approach is to create their own carbon projects, which, though involving a longer timeline and higher initial costs, can minimize risks once carbon credits are issued. Alternatively, companies can join data-driven carbon programs like CarbonClear, leveraging real-time consumption data from pay-as-you-go-enabled devices for a quicker and more cost-effective entry into the carbon market. However, standards from the International Carbon Reduction and Offset Alliance do not currently recognize digital strategies to participate in the VCM. Consequently, companies must consider trade-offs to select a model aligned with their financial situation, installation portfolio, and market preferences<ref name=":5" />.

	==Existing tools==		==Existing tools==

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 For scaling-up their operations developers need access to affordable debt as well as equity. As early-stage companies mostly have not been able to generate much capital, it is more difficult for them to prove their profitability and take out loans. Debt providers such as banks expect to see a track record of profitability in potential investees<ref>Yakubu, A. ''et al.'' (2018) ''Minigrid Investment Report - Scaling the Nigerian Market''. The Nigerian Economic Summit Group (NESG). Available at: <nowiki>https://rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf</nowiki>.</ref>. Concessional financing facilities including debts at subsidized interest rates or credit-risk guarantees, provided by development banks for commercial lenders, should be considered. Many different funding opportunities exist, which offer grant, equity and debt. Existing search platforms can help to find suitable offers and application documents quickly.
-Impact equity investors are the most active investors in the Nigerian market. Due to their mostly smaller ticket size, they are especially suitable for new relatively nascent companies, as they are more willing to provide seed capital (USAID 2019).
+Impact equity investors are the most active investors in the Nigerian market. Due to their mostly smaller ticket size, they are especially suitable for new relatively nascent companies, as they are more willing to provide seed capital<ref>USAID (2019) NPSP Nigeria Off-Grid Energy Market Intelligence Report. Available at: https://pdf.usaid.gov/pdf_docs/PA00XGH7.pdf (Accessed Sept 25, 2023).</ref>.
 [[File:Bildschirmfoto_2023-03-22_um_10.54.05.png|alt=|718x718px]]

@@ Line 6: / Line 6: @@
 This section will firstly describe different key components of financing. Afterwards, three challenges of accessing finance are highlighted, followed by three different guiding principles, each of them illustrated by practical examples from established companies.  Please keep in mind that this section focuses on business financing and how to access finance for your company. Accessing finance is only one part of a successful business model. For more details on this area, please also consult the [[Design Business Model|Design Business Model]] section.
 ==Definitions==
 There are three funding sources that should be considered when searching for financing options in the off-grid sector. This chapter will give an overview of the most common options. Which options are most suitable for which company stage, will be discussed in detail later in the chapter “Target financing that is suitable for the maturity of your company”.

← Older revision	Revision as of 07:39, 18 September 2023
(No difference)

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 With only about 55% of the population having access to electricity<ref>IEA ''et al.'' (2020) ''Tracking SDG 7: Nigeria''. Available at: <nowiki>https://trackingsdg7.esmap.org/country/nigeria</nowiki> (Accessed: 23 September 2022).</ref>, Nigeria is an attractive market for off-grid solar companies. This section will outline the challenges standalone solar (SAS) and mini grid developers face while accessing finance for their businesses, and provide some guidance on what can be done to tackle these.
-This section will firstly describe different key components of financing. Afterwards, three challenges of accessing finance are highlighted, followed by three different guiding principles, each of them illustrated by practical examples from established companies.  Please keep in mind that this section focuses on business financing and how to access finance for your company. Accessing finance is only one part of a successful business model. For more details on this area, please also consult the [[Nigeria Off-Grid Solar Knowledge Hub - Design Business Model|Design Business Model]] section.
+This section will firstly describe different key components of financing. Afterwards, three challenges of accessing finance are highlighted, followed by three different guiding principles, each of them illustrated by practical examples from established companies.  Please keep in mind that this section focuses on business financing and how to access finance for your company. Accessing finance is only one part of a successful business model. For more details on this area, please also consult the [[Design Business Model|Design Business Model]] section.
 ==Definitions==
 There are three funding sources that should be considered when searching for financing options in the off-grid sector. This chapter will give an overview of the most common options. Which options are most suitable for which company stage, will be discussed in detail later in the chapter “Target financing that is suitable for the maturity of your company”.
@@ Line 39: / Line 39: @@
 ====Lack of sufficient financing supply====
-A main barrier to access funding is the lack of affordable long-term loans. OGS business models are considered very risky as they are quite new and have only a limited track-record which leads to investors expecting only low profits. Besides most of the local investors are not familiar with the credit risk analysis of OGS projects and are therefore skeptical whether a significant cash flow can be generated. Consequently, they are demanding high interest rates and rigid collateral requirements. Especially private local finance suppliers like commercial banks offer debts on extremely high interest rates. Furthermore, despite progress across the industry, factors like perception risk, complex fund design and the time frame required to get through regulatory compliance prevent the disbursement of concessional capital. Concessional funding is needed to unlock commercial investments by decreasing investment risks and to scale up the business. In general, a lack of [[subsidies]], which are needed to close the viability gap of high development costs and the low-income of rural households, in the sector exists<ref name=":0">ACE TAF (2021b) ''Stand-Alone Solar Investment Map Nigeria''. Africa Clean Energy Technical Assistance Facility. Available at: <nowiki>https://www.ace-taf.org/wp-content/uploads/2021/03/Stand-Alone-Solar-Investment-Map-Nigeria.pdf</nowiki>.</ref><ref name=":2">Adamopoulou, E. ''et al.'' (2022) ''Benchmarking Africa’s Minigrid Report 2022''. AMDA. Available at: <nowiki>https://africamda.org/wp-content/uploads/2022/07/Benchmarking-Africa-Minigrids-Report-2022-Key-Findings.pdf</nowiki>.</ref><ref name=":3">GOGLA (2022) ''Nigeria country brief''. Available at: <nowiki>https://www.gogla.org/sites/default/files/resource_docs/nigeria_country_brief_0.pdf</nowiki> (Accessed: 22 September 2022).</ref>.
+A main barrier to access funding is the lack of affordable long-term loans. OGS business models are considered very risky as they are quite new and have only a limited track-record which leads to investors expecting only low profits. Besides most of the local investors are not familiar with the credit risk analysis of OGS projects and are therefore skeptical whether a significant cash flow can be generated. Consequently, they are demanding high interest rates and rigid collateral requirements. Especially private local finance suppliers like commercial banks offer debts on extremely high interest rates. Furthermore, despite progress across the industry, factors like perception risk, complex fund design and the time frame required to get through regulatory compliance prevent the disbursement of concessional capital. Concessional funding is needed to unlock commercial investments by decreasing investment risks and to scale up the business. In general, a lack of [[Subsidies|subsidies]], which are needed to close the viability gap of high development costs and the low-income of rural households, in the sector exists<ref name=":0">ACE TAF (2021b) ''Stand-Alone Solar Investment Map Nigeria''. Africa Clean Energy Technical Assistance Facility. Available at: <nowiki>https://www.ace-taf.org/wp-content/uploads/2021/03/Stand-Alone-Solar-Investment-Map-Nigeria.pdf</nowiki>.</ref><ref name=":2">Adamopoulou, E. ''et al.'' (2022) ''Benchmarking Africa’s Minigrid Report 2022''. AMDA. Available at: <nowiki>https://africamda.org/wp-content/uploads/2022/07/Benchmarking-Africa-Minigrids-Report-2022-Key-Findings.pdf</nowiki>.</ref><ref name=":3">GOGLA (2022) ''Nigeria country brief''. Available at: <nowiki>https://www.gogla.org/sites/default/files/resource_docs/nigeria_country_brief_0.pdf</nowiki> (Accessed: 22 September 2022).</ref>.
 ====Entrepreneurs are not ready to absorb finance====
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 |PeopleSuN's project partner [https://www.microenergy-international.com/ MEI] developed the FATE tool which is designed to establish the financial viability of mini grid and solar home system (SHS) projects in rural areas of Nigeria. This tool is addressed to companies, project developers, financiers, and policy makers. It is elaborated in a dynamic format, linking all inputs and outputs together, making it easy for the end-user to evaluate electrification projects according to different criteria including: revenues, expenses, and company's financial situation.
 |-
-|'''[[Nigeria Off-Grid Solar Knowledge Hub - Financing Sources Database|Financing Sources Database]]'''
+|'''[[Financing Sources Database|Financing Sources Database]]'''
 |Yes
 |Yes