REED - Supporting Entrepreneurs to Develop Clean Energy Businesses
Fulfilling some of the enormous potential for new and dynamic businesses to deliver clean energy services to more than two billion people in the developing world outside the urban areas is the ambitious goal of REED (Rural Energy Enterprise Development). REED partners recognise that accessing investment capital is the biggest constraint to the development of many small and medium sized enterprises in clean and renewable energy and have given priority to addressing this matter. However, for most of the enterprises they have supported, REED partners have not just facilitated access to loans and finance, but have also offered a more comprehensive range of business development services.
REED is a collaborative initiative between the United Nations Environment Programme (UNEP), the United Nations Foundation (UNF) and E+Co. E+Co is a non-profit clean energy investor working with local NGOs and research centres that provide technical and business development support for small and medium sized enterprises which offer clean energy products and services. Currently there are three REED programmes, AREED for African countries, B-REED for Brazil and CREED in China. REED has received funding from various sources, the bulk coming from UNF, but also from the W. Alton Jones Foundation, The Nature Conservancy, Body Shop International and Ted Turner.
In general, commercial banks in developing countries are reluctant to lend money to small and medium scale enterprises in clean energy, as they perceive this area to be relatively new and risky. E+Co is willing to stand the risk by providing the loans to enable these enterprises to develop. The loans are primarily intended to provide seed capital for the business to develop a new idea or expand its market and become regarded by the mainstream banks as worth investing in.
The process begins when an entrepreneur approaches E+Co or one of its local partners with a request for assistance to develop products or services for using renewable energy sources or improving energy efficiency. Prospective entrepreneurs then participate in a training workshop and work with E+Co's local partner to obtain more information, elaborate their ideas and prepare a business plan indicating loan amount, what the loan will cover and how it will be repaid. This is then submitted to E+Co as an application.
REED partners consider it important that the enterprises it assists borrow at commercial-equivalent interest rates, rather than interest free, as this will encourage commercial banks to lend to these enterprises in the future. It also maintains the money in the loans fund so that it becomes a revolving fund available to other enterprises in the future. REED can, though, offer more flexible terms than most commercial banks, for example an extended repayment period. REED partners also recognise the importance of providing seed capital to enable an entrepreneur develop an idea into a business, and patient or growth capital for the business to grow and develop. Total loan amounts provided to enterprises have ranged from US$10,000 to 120,000.
In some cases REED has taken up a share or equity in a company, in effect having part ownership of it. Another form of assistance REED has provided has been to act as loan guarantor for enterprises when they apply for loans from banks. Then if the enterprise has to default on its repayments REED would step in to cover these, though this would not be a desirable situation. Whether REED provides a straightforward loan, takes an equity share or acts as a loan guarantor would depend on what the local partners think is the best way of developing a particular enterprise.
The local country enterprise development partner has an important role in enabling enterprises to grow and develop. Assistance provided by these partners includes sourcing or developing technologies and equipment, improving business management and planning, supporting entrepreneurs to research markets and providing advice and information.
By 2003 E+Co had invested US$9.5 million in 70 enterprises in rural and peri-urban areas in 34 developing countries, 24 of which were delivering clean and sustainable energy services to more than 200,000 people.
Further Information
UNEP Energy
Tour Mirabeau
39 - 43 Quai André Citroën
Paris Cedex 15
France
Tel: +33-1-4437-1450
Fax: +33-1-4437-1474
www.uneptie.org/energy
E+Co
Energy House
383 Franklin Street
Bloomfield, NJ, 07003
USA
Tel: +1 973 680 9100
Fax: +1 973 680 8066
E-mail: ecoweb@energyhouse.com
http://www.energyhouse.com/
A brief introduction to REED can be found at the following website that also provides links to the AREED, B-REED and CREED websites
http://www.uneptie.org/energy/projects/REED/REED_index.htm
A toolkit on business planning and development in the area of clean energy is available on www.AREED.org/training
Note some of the files are quite large.
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