customer when the agreement period expires. The monthly fees are lower
for leasing than consumer finance since the repayment period is longer.
• Energy Service Company (ESCO) – ESCOs are similar to leasing
companies except that the ownership never transfers to the customer. The
service contract is ongoing; the company provides the energy service and
is entirely responsible for maintenance, and the customer pays a monthly
fee.
Subsidies are a feature of many rural energy access projects and are often used
to make finance more accessible to poor end users. Subsidies can be provided by
grants from donors, or through pro-poor payment initiatives.
Donors often provide grants to programmes or projects to reduce the cost of the
product or energy service to the beneficiaries, usually through capital equipment
subsidy, or reducing the cost of finance (e.g. loan guarantees or providing for low
interest loans).
Pro-poor payment initiatives can be designed so that the poorest of the
beneficiaries receive the product or energy service at a lower cost than other end-
users. This can be done with reduced energy usage tariffs and connection charges
for different income groups; this can be subsidised by high income groups or profits
from energy enterprises. A participative design of the initiative is essential to
ensure an equitable and acceptable scheme.
The subsidy should be designed to be effective at increasing energy access for
poor people, in a cost efficient and equitable manner while stimulating rather than
destroying markets in energy products and services.
Revolving funds are often used to provide loans to energy users at low interest
rates. A seed fund is established from a grant, from which customers can borrow
money. Original borrowers replenish the fund to enable subsequent borrowing.
This financing structure is suitable for micro-lending on products to households, as
well as to larger lending to organisations for infrastructure needed to provide
energy services.
Practical Action has demonstrated how a revolving fund can accelerate
implementation of micro-hydro projects (Peru case study). This model encouraged
local groups to secure a grant / loan mix to finance projects. The loan is revolving
between projects; new projects can be undertaken when an existing project has
completed repayments.
4. Project funding sources
This chapter provides an overview of funding and financing sources for NGOs and
enterprises to target in order to raise money for RE initiatives. There are a wide
range of potential sources that provide grants, equity or loans; key sources are
discussed and contact details provided in Annex 1. Funding opportunities,
particularly grants, are ever changing thus requiring devoted resources to keep up-
to-date with current opportunities.
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