The United Nations Environment Programme (UNEP), the Asian Development Bank, the African Development Bank and the Global Environment Facility, have launched a Seed Capital Assistance Facility (SCAF) to help stimulate renewable energy and energy efficiency ventures in the developing world.
So far six fund managers have been engaged in Asia and Africa, employing a range of early stage investment strategies, says a press release issued by UNEP Wednesday, which announced the facility.
The six funds engaged so far by SCAF are aiming for a total initial capitalisation of half a billion U.S. dollars, of which $55 million will be for early stage seed investing, discloses the statement, which adds that SCAF will invest $10 million to help get this needed early stage capital and support to clean energy entrepreneurs.
It says in China, SCAF is helping fund manager Conduit Ventures set up a clean energy incubation centre with local partners, such as the Shanghai Science and Technology Investment Corporation, to provide entrepreneurs with business development, technology commercialisation support and seed financing.
In India as well, work is underway with Yes Bank to create a syndicate of financial institutions that will invest seed and follow-on capital in socially and environmentally oriented small and medium-sized enterprises.
Also in India, SCAF is helping IndiaCo, a fund manager listed on the Mumbai stock exchange, set up a new fund targeting the energy efficiency sector. Meanwhile, two regional funds are also in development with SCAF support, which are the Low Carbon Accelerator Asia Fund and the E+Co Asia Fund.
According to the UNEP, in Africa the African Development Bank has added additional funds from its own resources to expand SCAF’s reach on the continent.
“Several projects are under evaluation, with SCAF already engaged with the Evolution One Fund in South Africa to provide seed financing to wind farm developments along the Eastern Cape region,” it says.
Commenting on this development, wind farm developer Mark Tanton said, “SCAF has empowered us to grow our business by providing access to scarce early stage financing and ensuring that meaningful skills transfer takes place within the country, a critical ingredient for the long term growth and sustainability of our business.”
Also remarking on the facility, Linda Zheng of Conduit Ventures said, “SCAF is helping us build a domestic platform for nurturing low carbon technology companies across China. We expect these centres to create globally competitive companies targeting the low carbon economy.”
For his part, Mr. Rana Kapoor, Founder / Managing Director and CEO of Yes Bank, said, “Since inception we have focused on integrating sustainability within our business focus and I truly believe that this opportunity to associate with SCAF will enable us to further deliver value to all our stakeholders in accordance with our Responsible Banking philosophy.”
UNEP’s Executive Director Achim Steiner, however observed that “Entrepreneurs can transform markets, but the environment for entrepreneurship remains weak in many countries, particularly in the energy sector,” adding,. “New ventures often lack business development support and seed financing is hard to secure.”
But according to ADB President Haruhiko Kuroda, “Although the financial markets are now taking low carbon energy sectors like wind power and solar energy quite seriously in the Asian region, there is still reluctance to engage too early.”
UNEP believes though that SCAF will address these issues by helping private equity fund managers provide seed financing and business assistance to early stage clean energy projects and enterprise developments.
Donald Kaberuka, President of the African Development Bank, on his part said that this facility is helping African entrepreneurs “jump-start new ventures aimed at solving the continent’s energy deficit.” SCAF is bringing vitality to Africa’s high potential renewable energy sector, he said.
In view of the fact that the two biggest challenges that investors face in providing seed capital financing to early stage projects and companies are the higher transaction costs and insufficient returns offered by these small, less mature and more risky ventures, SCAF is designed to address the two issues, offering investment fund managers two types of cost-sharing support for those willing to include a seed investment window within their overall investment strategy.
SCAF’s “enterprise development support” shares costs associated with sourcing deals, enterprise development services and seed scale investment transactions. As part of this arrangement, the fund manager commits to providing enterprise development services to qualified local entrepreneurs to identify and develop a pipeline of early stage clean energy investment opportunities.
The facility also offers “seed capital support” to offset the hurdle of higher perceived risks and lower expected returns when dealing with early stage clean energy project and enterprise developments. SCAF support ranges from10% to 20% of each seed capital investment and is used to cover some of the elevated project development costs that normally are financed by the project developer, such as technical assessments, environmental impact analyses and other aspects of the permitting process.
SCAF is implemented through the United Nations Environment Programme, the Asian Development Bank and the African Development Bank, with support from the Global Environment Facility and the United Nations Foundation. Meanwhile, technical support for SCAF activities is provided by the Nairobi office of the Frankfurt School of Finance and Management.
By Edmund Smith-Asante