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New Energies, South Africa
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Snow Mountain, Honduras



















FENERCA (Increased use of renewable energy resources in Central America) was a USAID-funded program, started in Central America, with the goal of providing enterprise development services to potential entrepreneurs. The FENERCA program included provisions for policy support (the most notable of which took place in Honduras) and sought to link entrepreneurial candidates with sources of financing even though the program itself did provide this financing.

Overview
Lessons learned
  1. Generate Synergies
  2. Develop Integrative Approaches
  3. Consolidate Local Capacity
Additional information
  1. Leveraged investments
  2. Fund recovery ratios
  3. Operational and financial performance of early stage investments

Thumbnail Analysis
  1. The Policy-Enterprise-Technology Balanced Approach
  2. The Enterprise-Customer Connection



OVERVIEW:


Began: In 2000, as a USAID-funded program to channel financing and services to clean energy enterprises in Central America.

What: A collaboration between E+Co, the Biomass Users Network – Central America (BUN-CA), Environmental Enterprises Assistance Fund (EEAF) and Instituto Eco Engenho (IEE) that lasted from 2000-2005. FENERCA sought to identify and provide both capital and business development services to promising energy enterprises in Central America.

Investment:
$5 M from E+Co plus $36.8 M from other parties over the period 2000-2005.

Business Development: Over 200 enterprises were identified, 112 of them received assistance in developing their business plans, 62 business plans were completed, and 29 had either received investments or were in advanced negotiations to do so by the project's end in 2005.

Now (2005): The program was expanded from its original 18 month, $1.7 M terms to five years and $5.3 M. It was also expanded to include countries in South America and Sub-Saharan Africa. Since termination, there is no longer any centrally compiled information regarding the fate of the enterprises and stakeholders involved with FENERCA.

Outcomes/Impacts: $36.8 M of private direct investment was mobilized through the efforts of FENERCA and 21 new energy enterprises were operating at the program's close in 2005 with another seven pending approval for disbursements. Roughly 108,000 people were supplied with modern energy just during the project's lifetime and that number is only growing as the created enterprises continue their operations.

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LESSONS LEARNED:


1) Generate Synergies

The main objective of the FENERCA Program was to promote the development of renewable energy enterprises and projects, while increasing the capacity of financial institutions, entrepreneurs, and NGOs to support the advancement of the region’s renewable energy sector. For an approach with such broad goals to be successful, it was recognized that a very active and well-articulated collaboration among multiple organizations with complementary strengths would be required. In terms of initial design and conceptualization, this collaboration was between E+Co, Central American regional NGO BUN-CA, and U.S.-based consulting company, PA Consulting. For the purposes of implementation, the collaboration was primarily between E+Co, BUN-CA and a number of local entities, such as the Energy Directorates of each country and the National Associations of Energy Producers (many of which were created as an outcome of Fenerca activities). The possibility of replicating the results to other regions was also supported by the involvement of Environmental Enterprises Assistance Fund (EEAF), Instituto Eco Engenho (IEE) and Instituto de Desenvolvimento Sustentável e Energias (IDER).

One of the most important synergies that enhanced the successful execution of the program was between FENERCA and FOCER, a UNDP/GEF supported Project executed by BUN-CA. The FOCER (Strengthening the Capacity for Sustainable Renewable Energy Development in Central America) Program started in March 2000 and concluded in September 2002, thus it started slightly before FENERCA and overlapped with its first two-and-a-half years. Both programs had a number of common goals, and they were able to optimize the achievement of those goals by leveraging each other’s strengths. For example, FOCER carried out country-level and regional consultation workshops with key energy sector stakeholders about the barriers for renewable energy, and these needs were later addressed through FENERCA workshops that focused on strengthening entrepreneurial and institutional capacities for the execution of sustainable energy projects. The two regional programs also complemented each other in their approach to consolidating local capacity, as is described on a following section of lessons.

Back to top2) Develop Integrative Approaches

FENERCA engaged a broad range of stakeholders in ten target countries during a historical period when the regional energy sector was undergoing sharp transformations. In order to have a meaningful impact on the potential for development of the renewable energy sector, the project needed to address multiple areas including, among others, the policy environment, the capabilities of the local and regional finance sector, the entrepreneurial maturity and capabilities of local developers, and the assessment of emerging markets (including frameworks for carbon transactions).

Assisted by a rapid assessment phase in which input was gathered from 116 stakeholders, the FENERCA Program designed a broad set of tasks that addressed a diversity of areas: entrepreneurial capacity, financial institution capacity, strategic support to specific investment opportunities, availability of next-stage funds, policy and regulatory environment, climate change governance and carbon transactions, scaling up to new regions, productive uses of energy for improving rural livelihoods, the improvement of training manuals and the monitoring and evaluation of the program itself.

One of FENERCA’s strengths was its effective integration of the Policy, Enterprise and Technology elements in its approach. This integrated approach enabled the Program to accomplish positive outcomes in all of these areas, and in particular, some that were dependent on a complex interplay of all three factors. At the policy level, it was able to provide training on renewable energy and policy to 288 government officials and NGO representatives, produce (and update on two subsequent occasions) an assessment of policy barriers to renewable energy project implementation in Central America and mobilize the governments of five Central American countries to take steps to overcome these policy barriers. The most notable accomplishment in this area was the passing by the Honduran Congress of a Renewable Energy Incentives Law and its signing of Power Purchase Agreements with 18 renewable energy producers.

On the issue of entrepreneurial capacity, FENERCA provided training on renewable energy to over 1,300 entrepreneurs and offered enterprise development services to 112 enterprises - 62 of which completed business plans with the Program’s support. Furthermore, in relation to increasing funding opportunities, the Program trained 134 financial institutions in renewable energy investment analysis, channeled nearly $44 Million in investments on FENERCA-supported enterprises, and set the stage for the creation of a $20 Million mezzanine fund focused in renewable energy in Central America (CAREC).

Finally, with regard to technology, the Program developed 11 manuals on diverse applications of renewable energy technologies; these were published in four languages [1] and 3,800 copies were distributed. Enterprise Development Services were provided to 9 enterprises that offered cash-generating renewable energy applications for end-users. Additionally, eighteen enterprises were assisted in undertaking the analysis of their climate change mitigation potential, two of them went on to become worldwide green trade benchmarks [2].

Back to top3) Consolidate Local Capacity

The Program addressed the building of local capacity at several levels. Among the most significant were:

a) Strengthening the organizational capacity of BUN-CA, by bolstering its regional network, enabling it to complete a long term strategic plan, and enhancing the skills of its regional staff and country representatives. BUN-CA staff and country reps. received over 900 person-hours of training throughout the Program. As one indicator of the relevant impact of this support, two of BUN-CA’s country representatives were subsequently appointed to senior government energy positions in their countries [3].

b)
Assisting small-scale local entrepreneurs in understanding their market and regulatory context and becoming relevant stakeholders in their countries’ energy policies. FENERCA events became key networking venues that facilitated the coordination among entrepreneurs and their interaction with policy-makers. Building on these interactions, local entrepreneurs established national renewable energy producers associations in Honduras (AHPPER) in 2001, and Nicaragua (ANPPER) in 2002; a similar association existed in Guatemala (AGER) since 1999. During the 2005 final regional FENERCA event, representatives from the three associations (along with their Costa Rican counterpart – ACOPE) discussed the creation of a regional networking body. Subsequently, in 2006, the four associations, along with a newly formed Panamanian counterpart (APPER) chartered the Regional Renewable Energy Federation for Central America and the Caribbean (FERCCA). Today, FERCCA has membership from the five Central American countries plus Mexico, Colombia and the Dominican Republic.

c)
A third level of engagement in developing local capacity involved generating resources that assisted entrepreneurs in developing and promoting their projects. As already stated, these efforts resulted in 1,300 trained entrepreneurs and 62 business plans completed. Additionally, twelve specialized manuals were widely disseminated and country-specific parameters were calculated that enabled developers to estimate their projects’ carbon benefits.

d)
Another highly relevant impact of the Program was its role in leveraging next-stage funding. As shown in Table 1, E+Co provided $1,619,154 in early stage funding to FENERECA supported projects. Subsequent investment by E+Co in projects within that list of early-stage ventures amounts to $2, 835,669. E+Co’s investment also enabled projects in this list to attract a total of $14,050,000 in next stage funding by third parties.

The existence of E+Co’s monitoring and evaluation system, which was also a product whose development was supported by the FENERCA Program, allows more in-depth analysis into the outcome of those early stage E+Co investments. Since many of these investments were early stage investments, giving sponsors their first opportunity to step out into an emerging market, it is understandable that not every initiative became a successful enterprise. Estimations of the market that were too optimistic, or unresolved flaws in managerial competence seem to have been the main obstacles for entrepreneurial success that led 7 out of the 20 supported enterprises to eventually fail. These investments in unsuccessful enterprises represent 28% of the total E+Co early stage money. However, it is important to note also that those projects that were successful, were able to leverage a significant amount of next stage funds: US$ 14.5 for every dollar of initial E+Co funding. This means that out of a total of more than $18.5 million in investment mobilized, only $458,786 - approximately 2.5% - was sunk in unsuccessful ventures.

[1] English, Spanish, Portuguese and Swahili
[2] In 2001, Hidroelectrica Papeles Elaborados became the first developing country enterprise to achieve an international green certificate transaction, when it negotiated with Dutch utility Nuon for 100% of its environmental benefits. In 2005, La Esperanza was one of the first two projects worldwide to be issued Emission Reduction Credits by the Clean Development Mechanism.
[3] Mrs. Patricia Panting was appointed Minister of Energy and Natural Resources of Honduras, and Jorge Galindo was appointed National Energy Director of Guatemala.

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Additional information


Table 1. Leveraged Investment in FENERCA Projects with Early Stage Funding by E+Co

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The recovery of those early funds was also very reasonable, considering the level of risk involved in this type of early stage ventures. As illustrated in Figure 1, over 70% of the early stage funds were fully repaid or are still in current financial operations; another 16% are subject to partial recovery through collateral liquidation or under a settlement that contemplates partial repayment; 10% are currently in a condition of arrears where legal action has been initiated; and only 4% of the invested funds have been completely written off.

Back to topFigure 1. Fund Recovery Ratios for FENERCA E+Co Early Stage Funds
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Operational and Financial Performance
of E+Co Early Stage Investments Resulting from FENERCA

Project
Country
E+Co/FENERCA Early-Stage Funding
Early Monies Recovery
Status of Project Implementation
Leveraged
Next-Stage Funding
Success/Failure
Assessment
Ascima
Brazil
$50,350
Repaid
Inoperative
Undetermined
Despite installation of the technology and provision of technical assistance the organic farming operation was never successfully implemented. Follow-up analysis points to difficulties in addressing the human factor (local small farmers never adapted to the work dynamic required by the organic farming process).
Carbo Charcoal
Brazil
$160,000
In Arrears
Operational but unable to meet projected revenues
Undetermined
After building the facility, the originally intended buyer pulled out and the developers were unable to consolidate an agreement with a new buyer that would agree to pay a premium for environmentally friendly charcoal. The project was unable to meet its costs or its financial obligations to E+Co. After several failed attempts at negotiating a restructuring, E+Co is moving forward with legal measures to collect.
Ceramica
Brazil
$102,041
Active
In Operation
Undetermined
The project is operational. It has faced difficulties finding sufficient demand for its product, which led to an adaptation of its tiles for a new market. It has continued to produce with biomass and to be the main source of employment in its village.
Hidrosol
Brazil
$19,429
Active
In Operation
E+Co
New loan approved
$42,798
The project is operating and meeting its financial obligations. Repayment of the first loan is projected soon and disbursement of the second loan would follow. The second-stage investment allows the company to relocate to a higher visibility site and increase its inventory capacity, enhancing order delivery times; these factors are expected to greatly benefit business cashflows.
Operarias
Brazil
$27,000
Written Off
Never got off the ground
N/A
This venture faced far too many technical constrains, from the sponsor's lack of technical experience to the actual problems of handling the bees and their production behavior. It leaves an important lesson learned in terms of assessing more skeptically the sponsor’s estimation of its own competence.
Solar Moveis
Brazil
$28,136
Written Off
Inoperative
N/A
The project’s failure is attributed mainly to insufficient capacity and drive by the entrepreneur to branch out into the new solar dryer business, in addition to its traditional furniture business. Leaves a lesson in terms of assessing the sponsor’s operational competence more rigorously.
Tecnosolar
El Salvador
$75,000
Negotiated Execution of Collateral
In Operation
Undetermined
The company survives but faced persistent financial struggles, due to both market and managerial capacity issues. Following dire cashflow problems in 2002-2003, the financial relationship with E+Co was ended, under mutual agreement, in May 2004 through liquidation of the property collateral. The company has gradually recovered and continues to operate.
Jones
Guatemala
$60,500
Repaid
Raising Capital
E+Co
$100,000
The company has fully repaid E+Co and continues to seek capital for financial closure


La Esperanza
Honduras
$250,000
Repaid
In Operation
E+Co $1,000,000
BanPais $8,000,000
BGA $2,800,000
FinnFund $1,900,000
Banco Atlantida $500,000

In operation and meeting all expectations. This projects is a Triple Bottomline Showcase Project internationally and a trailblazer in carbon finance. It is important noting that it has had to contend with cashflow shortages due to dryer climates and reduced water flow.
La Boquita
Honduras
Not Disbursed
($185,000 had been approved)
Did not
disburse
Never got beyond design stage
N/A
Potential equity investors pulled out at last minute and project could never reach financial closure.
Snow Mountain
Honduras
$150,000
Repaid
In Operation
E+Co
$100,000

A showcase project. This was the first private hydroelectric generation project built in Guatemala. Continues to operate successfully, although it has faced difficulties with dryer climate than projected and therefore lower water flow.
Tecnosol
Nicaragua
$100,000
Repaid
In Operation
E+Co $1,200,000
IADB
$700,000
Continuing to operate and expand. The enterprise is a showcase enterprise in terms of its gradual consolidation and impact on rural un-electrified populations.
New Energies
South Africa
$60,398
Active
In Operation
E+Co
$ 192.871
The project has continued to operate and received additional contracts, for which E+Co has been a key financier.
MONA 2
Tanzania
$100,000
Repaid
In Operation and Expansion
E+Co $200,000
CRDB Bank
$150,000
The project has been a showcase project, and has successfully branched out into a new PV installation company Zara Solar.
RESCO
Tanzania
$63,000
Repaid
In Operation
Undetermined
The project has operated successfully and met all obligations. It is being considered for a follow-up investment.
REX
Tanzania
$153,000
Active
In Operation
Undetermined
The project is operating successfully.
FADECO
Tanzania
$27,000
Active
In Operation
Undetermined
Project is operating, but has been affected recently due to entrepreneur health issues.
KBPS
Zambia
$75,300
Negotiated Execution of Collateral
Inoperative
Undetermined
The enterprise failed due to operational weaknesses. Insufficient developer capacity is seen as main factor.
RCI
Zambia
$8,000
Written Off
Inoperative
Undetermined
Two limiting factors: low administrative capacity and climate effects on crops were amplified by the inaccessibility of the project, and thus the difficulty to provide EDS support to developer.
Village
Brazil
$110,000
Partial Payback (60%)
Inoperative
Undetermined
The company was primarily affected by difficulties collecting on its installed systems.


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THUMBNAIL ANALYSIS:


The Policy-Enterprise-Technology Balanced Approach

FENERCA_Triangle.JPG

Back to topThe Enterprise-Customer Connection

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Supporting Documents: