Authors:	Parker, W. Syngellakis, K. Shanker, A.
Organizations:	Institute for Sustainable Power IT Power Innovation Energie Developpement
Reference:	IEA  PVPS T9-08:2004
Date of issue:	May 2004
Details:	28 pages: figures, tables; with references appendices
Type:	Report IEA  PVPS Task 9
Download:	Open or download report as PDF document (1073 kB)
Abstract:	PV deployment programmes in developing countries require the procurement of capital resources in order to plan the programme, purchase, transport and install the equipment, and provide training and maintenance for its use. Where does this money come from? This guide will explore various sources of financing accessible to programme developers engaged in off-grid rural electrification. Although this guide focuses on PV deployment, the concepts presented in this guide will generally be applicable to other decentralised electrification efforts and even to rural development efforts as a whole.
	Financing is the process of securing funds via loans, grants, equity investment, or other instruments. Financiers in general are concerned with making a return on their investment and will finance projects that meet their fiscal, geographical and ethical guidelines. They will assess the risks related to individual projects and may demand security or guarantees to ensure the desired return on investment. Financing for PV programmes at the national level principally comes from international development banks in the form of Official Development Assistance (ODA) or concessionary finance. Government ministers can procure large loans – and in some cases grants – from multilateral development banks and bilateral agencies. Private foundations can provide grants or soft-loans. "Green" market mechanisms like Certified Emissions Reductions produced through the Clean Development Mechanism, can further augment project funding. Finally, guarantees from development banks can play an important role in facilitating financing. While international financing sources play an important role in capitalising development projects, significant funds are also available through developing countries themselves. Many countries have created funds earmarked for development, or even for rural electrification, by levying tariffs on grid electrification or by taxing other energy sources. Commercial banks and investment firms both at the national and international level are also willing to provide financing to development projects when the projects are structured to meet their requirements for return on investment. Programme developers need to consider a number of variables as they plan their financing packages, often including financing from a mix of sources to maximise flexibility. Each type of financing source may have different requirements for ROI (return on investment) and different levels of flexibility for dealing with the length, uncertainties, and risks of a given programme. Research is vital to understand the requirements, preferences and application processes of each potential financing source and to identify the correct contact point at each source. The application process will almost always include a series of conversations and the exchange of application forms, references, and other paperwork. The financing process will also require the programme developer to calculate the total costs of the project with reasonable accuracy. The development of a business plan might be required, including market analysis and even stakeholder evaluations, especially for commercial applications. A business plan further assists programme developers to thoroughly prepare to “sell” their project to financiers. Finally, programme developers need to realize that the application time frame can vary widely from source to source, taking as long as a couple of years with the large multilateral development banks and as little as several months with commercial sources. Programme developers will benefit not only from thorough planning of their projects, but also from the consideration of financing options and variables in the earliest stages of the programme planning. See also the article Show me the money! in PV power of June 2004.

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