PUE working group meeting 23 Oct 2023

Update on the HSFG

This meeting of the working group on PUE specifically focused on PUE in Uganda, looking at the current state of affairs, remaining bottlenecks and possible ways forward to advance PUE in the country.

Power for All started a programme in Uganda to bring all parties concerned around the table. Brain Kawuma of Power for All presented this in a working group meeting in July 2021. Please find this earlier presentation here. Since then, substantial developments have taken place, warranting a dedicated meeting of our working group.

In preparation of the meeting Wim asked all members to share information on their PUE activities in Uganda. The resulting overview can be found here.

Wim informed the meeting that the long-awaited report on PUE by ESMAP is available now and can be accessed here.
He also mentioned the upcoming Renewable Energy Conference and Expo mid-November in Kampala.

Update on PUE in Uganda

After an introduction to Power for All, Brian Kawuma updated the meeting on the current status of their Powering Agriculture campaign in Uganda. This campaign focusses on the use of renewable energy in the food chain. Next to Uganda, this campaign covers Ethiopia and India.
In Uganda, about 70 percent of the workforce is agrarian but with low productivity, with 95% of farmers relying on human power. Only 3% of the population is electrified by DREs and there is little incentive to invest in power-dependent productive appliances.
Productivity increases require mechanisation, which in turn requires reliable, affordable access to energy. And despite SDG 2ʼs success being intertwined with SDG 7, the benefit of an energy transition for agriculture has largely been overlooked at both local and global levels.
Decentralised Renewable Energy (DRE) technologies, like solar, can play an important role in the mechanisation of the agro sector, with applications at production, post-harvest and storage, transportation, and processing.

The key challenges for off grid solar companies to work on PUE in the agri food chain include limited access to finance, which limits scaling of businesses and import of equipment, limited technical aftersales capacity, and limited access to asset financing partnerships to offer off-balance sheet financing options to clients. Next to these, limited existing last mile distribution networks for PUE distributors and ag-tech suppliers and limited understanding of end-user needs limit opportunities for accessing alternative financing options.

End users are unable to afford genuine PUE technologies, and therefore resorting to lower quality, locally fabricated solutions. Limited consumer awareness on various existing on- and off-grid PUE technologies and limited asset financing and digital infrastructure undermine the uptake of innovative financing solutions.

Financial institutions are facing challenges as PUE products are more expensive than traditional off-grid solar products, and therefore need new innovative financing mechanisms like flexible payment schedules to match agricultural seasonality. Following up on loan repayments can be challenging due to locations or limited financial records of agribusinesses and some PUE assets are hard to recover/repurpose (e.g. water pumps) and therefore unattractive as collateral. And in general, limited understanding of the PUE sector by financing institutions undermines risk assessments and capacity to develop tailored products.

Thereafter Brian shared the main action points of the Action Plan:

1. Create a national policy framework that harmonizes the priorities of the ministries of Energy and Mineral Development and Agriculture Animal Industry and Fisheries, to include DRE and PUE access as a lever for agricultural productivity.
2. Develop a national strategy for scaling renewable energy for productive use in the agriculture sector, including integration with the Draft National Energy Policy, the Renewable Energy Policy and National Agricultural Policy.
3. Enable collaboration between the Government of Uganda, the private sector and development agencies to coordinate promotion of PUE in agriculture, including improving ease of doing business for DRE and PUE companies
4. Prioritise ease of access to finance that enables smallholder farmers to adopt renewable energy technologies, including state-sponsored credit facilities, local banks, and microfinance institutions
5. Increase the amount of early-stage funding and patient capital for innovative PUE solutions with strong potential and relevance for Uganda which may not be at market ready status
6. Create credit reference profiles for Ugandan solar energy companies to help commercial lending institutions easily work with them by providing credit worthiness information about these business
7. Waive Value Added Tax (VAT) and import duty for DRE and PUE appliance components (e.g. batteries) to support job creation and small businesses in rural, poor areas.
8. Fund research and testing of off-grid productive use appliances through bodies like Uganda National Bureau of Standards (UNBS) to define or adopt metrics for quality in the industry
9. Create partnerships between commercial lenders and agricultural value chain intermediaries such as producer cooperatives and agro-input dealers to extend energy loans to farmers for appliances such as solar water pumps, dryers, etc
10. Create skilling and job opportunities in PUE through collaborations between the private sector, vocational training (TVET) centres and the Ministry of Education that adds DRE to curricula, leading to more technicians to service PUE equipment.

Public financing mechanisms to accelerate the uptake of PUE

Jonathan Maraka represented UOMA, the Uganda Off-Grid Energy Market Accelerator, a dedicated and neutral intermediary, focused on scaling off-grid energy access implemented by OCA. UOMA aims to accelerate the off-grid energy market in Uganda through research & insights, coordination and direct interventions.

The PUE sector in Uganda is still nascent and dominated by large SHS companies with diverse product portfolios; pure-play PUE companies such as Tulima Solar and EnerGrow still have limited traction. However, there is growing interest from private and public sector to scale the adoption of PUE technologies. Government has provided grant funding and has developed polices and strategies such as the National PUE Roadmap, while development partners such as BGFA, EEP Africa, CLASP are providing concessional finance to increase PUE access, and eco-system players such as GET.Invest, PAOP, EnDev and UOMA are providing TA to PUE companies and government to strengthen capacity.

However, demand- and supply-side challenges are still affecting capital allocation towards PUE. For the demand side Jonathan mentioned limited collateral / security to secure borrowings, limited investment-ready PUE businesses that demonstrate strong traction and a lack of proper systems and structures, e.g., robust data collection systems, formal reporting structures.
On the supply side he sees low perceived profitability and key risks that inhibit commercial lending, misaligned expectations on investor equity terms and business owner understanding of control and dilution and insufficient access to risk mitigation instruments such as guarantees to support limit crowding-in of private capital.

Given the stage of growth of the PUE sector, public financing mechanisms have the potential to advance the sector and crowd in more commercial financing actors.
On the supply side the following options exist:

• Upfront grants: Non-repayable funds from to help PUE companies expand into new markets and products
• Results Based Financing: Payments to service providers upon achievement and verification of predefined results
• Credit lines: Funding to address liquidity issues in banking sector and provide acceptable borrowing terms for off-grid solar companies
• Guarantees: Risk-sharing between commercial lenders and donors when risk perception is high
• Tax exemptions: Removal of VAT and/or import duty for qualifying PUE products make them affordable

While on the demand side Jonathan mentioned

• Demand-side subsidies (DSS): Subsidies provided to end-users that aim to reduce the financial hardship associated with accessing PUE products
• Public procurement: Government agencies purchase systems through an organized bid and distribute the systems to end users directly

However, it is important to address existing barriers in the design and implementation of public financing mechanism:

• Limited support towards strengthening of supply chain: There is a need for increased support through the right incentives for PUE players to boost their distribution capabilities within in hard-to-reach areas (e.g. refugees) to address challenge of accessibility. For example, programs targeting refugees need to ensure companies not only operate in urban areas near refugee settlements but also in markets within these communities.
• Eligibility criteria: While funders want to engage a wide range of companies, eligibility criteria for public financing mechanisms across line of credits, grants and other mechanisms are not well known by companies and furthermore, the terms of these facilities at times exclude majority of companies in the sector. Majority of PUE businesses struggle to meet eligibility criteria ranging from corporate governance requirements (e.g. number of years of audited financial reports or tax clearance required) to quality standards of products.
• Limited communication before and during implementation: There is limited communication between the organisations managing the facilities and other stakeholders (companies and consumers) to raise awareness about the facilities as well as to gather feedback to improve implementation. This is in part because some of the programs are focusing on multiple countries besides Uganda and do not have dedicated staff in Uganda. In other instances, these programs have smaller budgets allocated for communication as such they are not able to reach their intended stakeholders.
• Level of subsidies/grants: For programmes focusing on demand side subsidies or other forms of grants, there have been mixed experiences with some being either too high or too low. More importantly, private sector has raised concerns around the exit strategy of the grant/subsidies; there needs to be a phased out the support and as a result, companies struggle to sell their products after the grants or subsidies are withdrawn because of customer expectations of lower prices.

There is a need to design initiatives recognizing needs of consumers and other actors in Uganda and engage all stakeholders to learn from past experiences.
For Development partners / multi-lateral and bi-lateral agencies these include:

• Appropriate mechanisms to strengthen supply chains: Programs should include the appropriate incentives to support PUE players scale their distribution networks to target regions e.g. provision of matching grants to support set up of supply chain hubs in market areas within host communities
• Explore other data sources to inform subsidy levels: In addition to surveys and bureau of statistics, explore other data sources including phone networks to inform subsidy amounts and targeting of users
• Understand market needs and plan to address operational gaps: There is a need to engage all stakeholders on the ground, fund managers, PUE businesses, other development partners running programs to 1) ensure there is strong understanding of the market needs and characteristics of businesses operating in country 2) plan to address operational gaps through technical assistance or through partnerships between companies for those who cannot meet eligibility criteria
• Communication: There is a need to allocate sufficient budget towards communication to target all stakeholders (businesses, government, and customers) before and during implementation of program. More importantly, it is critical to have channels to gather feedback during implementation

For private investors / fund managers these include:

• Appropriate ticket sizes: There is a need for more facilities focusing on working capital needs as well as capital expenditures for strengthening distribution with appropriate ticket sizes to match the stage of growth of businesses (up to $ 500k). These could target larger SHS companies with PUE products as well as companies focusing on pure-play PUE business
• Technical assistance: Where possible, investors should explore setting up funds with resources allocated towards tailored technical assistance to support PUE companies strengthen their models

Scaling PURE in Uganda

Carlos Sordo of GOGLA introduced their new programme to scale productive use of energy, a programme funded by the IKEA Foundation. The aim is to build a stronger industry around Productive Use of Renewable Energy (PURE).

GOGLA and IKEA Foundation, through this project, envision the following four outcomes:

• Improved enabling environment for PURE markets at global and national level with
• Increased availability of critical market data and actionable insights;
• Strengthened performance of PURE companies; and
• Improved PURE ecosystem.

The focus of the programme is (initially) on Uganda, Kenya and India while also working in Ethiopia and Rwanda. GOGLA will work with 20+ national RE Associations on the ground, while also including more PURE targeted data in their ongoing data collection and extending company support to those companies operating in the PURE area.

A main focal point in Uganda will be support to the Government of Uganda on the follow up steps of the earlier developed PURE road map, ensuring all players are on board and all identified areas for action are covered.

Update on the World Bank-funded Electricity Access Scale-Up Project (EASP)

Federico Hinrichs of the World Bank provided some background on the Electricity Access Scale Up Project in Uganda. Full details of the programme can be found here

The programme was launched recently and particular the financial intermediation component, implemented by UECCC, will be of interest to the working group. The full programme is USD 600m, mostly for the utility component, while the off-grid component is approx. USD 100m. The latter will be used for providing credit to participating financial institutions, an RBF window for demand side subsidies, a component specifically targeting PUE technologies and Technical Assistance. The RBF window can provide up to 60% subsidy to PUE technologies (with a cap).

Discussion

From the discussion it was concluded that more research is needed on the impact of PUE technologies on the income of the end users / farmers.
Acumen is currently doing a study into this, trying to build a lean data tool to understand income impacts. They are doing a pilot study with 3 cooling technologies (freezers, walk-in cold rooms, dairy chillers), and will be able to share on this next year. 
It was noted that just providing the technology is not enough and that market access is key. Acumen wrote an article about this earlier this year. https://nextbillion.net/selling-productive-equipment-smallholder-farmers-not-enough/
Also, the CLASP publication "Keep  it Cool" is really good at explaining these issues.

Another key issue is better coordination, making people aware of activities, studies, etc. Including better understanding which company is operating where and what they have learned during so. Currently that information might be restricted to the company and their funders only. We also need to better align with the agriculture sector and access their knowledge.

It was agreed that the HSFG is very well placed to be a clearing house of information on PUE in Uganda (and other countries for that matter).
Wim requested all members to share with him any Information on existing coordination groups (incl. target audience, objectives and who to contact for more information) as well as any relevant document that you are aware of.

Wim closed the meeting with the conclusion that we will have to follow up on today’s discussion and that we will continue during the next WG meeting.