You are here: Access to funding key in unlocking full potential of clean cooking sector

4/11/2017

Limited financing and investment have held back the expansion of clean cooking solutions among the people that need them most in developing countries. This is one of the key takeaways from the Clean Cooking Forum (CCF) that took place in New Delhi, India, on October 24-26. The Forum, which is held every two years, brings together different actors working to accelerate the production, distribution and use of cleaner, more efficient cookstoves and fuels in developing countries.

According to Dr Arunabha Ghosh, Chief Executive Officer of the Council on Energy, Environment and Water (CEEW), less than 3% of the total financing available for the energy access sector globally goes to the clean cooking sector, with solar taking much of the financing.

The funding gap continues to restrain efforts for research and development of innovative product designs and hinders the growth of many clean cooking enterprises, which are often in the early stages of development and in need of patient capital, as well as business development assistance. Few investors are prepared to support these early stage companies, particularly those operating in unproven markets. 

Increased funding and adequate financing tools to support clean cookstoves and fuels enterprises at different stages of development could unlock the potential for market growth and stimulate demand of clean cooking solutions.

Challenges and strategies to attract capital into the sector were discussed during the panel session, “Raising seed and early-stage equity” moderated by Energy 4 Impact’s Head of Advisory Services, Shashank Verma.

Verma, who has seen substantial growth in the clean cooking sector over his professional career as business advisor, acknowledged that there is still a long way to go in scaling the market and reaching universal adoption. Impact investors and philanthropy have a key role to play in providing the sort of flexible capital with high tolerance for risk, and long-time horizons, able to meet the needs of entrepreneurs. Such forms of capital range from early stage grant funding, to early-stage patient capital, which looks to exit in 10-12 years rather than the typical five years.

Verma believes that business models guaranteeing both financial and social and environmental return on investments could be key in attracting early-stage financing from angels, impact investors and other risk capital providers.

In addition to demonstrating financial returns, clean cooking business models ought to integrate impact values in terms of improved health, nutrition, increased education opportunities for women and children, and reduced environmental impact.

- Verma says.

He adds:

The social aspect of the clean cookstove business needs to be valued and monetised for it to attract more grant or donor capital.

The panellists, comprising sector experts, entrepreneurs and impact investors, stressed the need for both working capital for companies developing innovative viable products that customers want and are willing to pay for, and for end-user financing, which can make these products affordable to low-income consumers.

The panellists also highlighted the important role that pioneering businesses can play in paving the way for other companies seeking to raise capital by proving new business model concepts.

Over the last decade, Energy 4 Impact has been leading a number of initiatives supporting the development of commercially viable and scalable enterprises in the clean cooking sector by addressing challenges relating to developing appropriate technologies; building effective product distribution channels; proving and adapting business models and accessing finance.

These initiatives range from programmes targeting the integration of women producers and retailers of clean cookstoves and fuels into the energy value chain, to promoting the uptake of improved institutional cookstoves among schools, and supporting private sector companies providing non-wood cooking solutions in humanitarian settings.

The clean cooking sector is on the cusp of scaling-up, just like the Solar Home System sector was five years ago. It is important to focus efforts on supporting early stage businesses to become investment ready. We also urge providers of flexible financing to come forward to enable businesses to achieve impact at scale.

-  Verma says.

The pro-bono support that Energy 4 Impact has provided to over 250 SMEs in 22 countries in Africa has helped them raise over $115 million in capital in the last 10 years.