Type of Review: Annual Review Project Title: Renewable Energy and Adaption to Climate Technologies (REACT) Window, Africa Enterprise Challenge Fund (AECF) Date started: August 2010 Date review undertaken: October 2013 DRAFT 15.11.13 Instructions to help complete this template: Before commencing the annual review you should have to hand: the Business Case or earlier project documentation. the Logframe the detailed guidance (How to Note)- Reviewing and Scoring Projects the most recent annual review (where appropriate) and other related monitoring reports key data from ARIES, including the risk rating the separate project scoring calculation sheet (pending access to ARIES) You should assess and rate the individual outputs using the following rating scale and description. ARIES and the separate project scoring calculation sheet will calculate the overall output score taking account of the weightings and individual outputs scores: Description Scale Outputs substantially exceeded expectation A++ Outputs moderately exceeded expectation A+ 1
Transcript
Type of Review: Annual Review
Project Title: Renewable Energy and Adaption to Climate Technologies (REACT) Window, Africa Enterprise Challenge Fund (AECF)
Date started: August 2010 Date review undertaken: October 2013
DRAFT 15.11.13
Instructions to help complete this template:
Before commencing the annual review you should have to hand:
the Business Case or earlier project documentation.
the Logframe
the detailed guidance (How to Note)- Reviewing and Scoring Projects
the most recent annual review (where appropriate) and other related monitoring reports
key data from ARIES, including the risk rating
the separate project scoring calculation sheet (pending access to ARIES)
You should assess and rate the individual outputs using the following rating scale and description. ARIES and the separate project scoring calculation sheet will calculate the overall output score taking account of the weightings and individual outputs scores:
Description Scale
Outputs substantially exceeded expectation A++
Outputs moderately exceeded expectation A+
Outputs met expectation A
Outputs moderately did not meet expectation B
Outputs substantially did not meet expectation C
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Introduction and Context
What support is the UK providing?
Renewable Energy and Adaptation to Climate Technologies (REACT) is a climate change window of the Africa Enterprise Challenge Fund (AECF) running from September 2010 to August 2016. Challenge funds are a means of leveraging private sector innovation and capacity to help meet development objectives. REACT focuses on incentivising private sector supply of low cost clean energy and adaptation technologies to help the beneficiaries – rural people, farmers and agri-businesses – adjust to climate change and escape from poverty.
The REACT window is a competition open only to for-profit companies in Kenya, Tanzania, Rwanda, Uganda and Burundi. Mozambique (funded by the Netherlands) has been added in 2013. Successful applicants receive grants and interest free repayable loans up to a maximum of US$ 1.5 million.
REACT issued its first call for applications (Round 1) between November 2010 and January 2011. A second Round of applications (Round 2) was invited from October 2011 to December 2011. The Mozambique round was launched in March 2013 and completed in September 2013.
Contributions from DFID and other donors are as follows:1
Donor Commitment Commitment (US$)
DFID Africa Regional Department £ 5,000,000 8,250,000
DFID Tanzania £ 5,000,000 8,250,000
DFID Kenya2 £ 1,000,000 1,635,991
Total DFID EAC £ 11,000,000 18135991
DANIDA Kenya DKK 65,000,000 12,330,890
SIDA Tanzania SEK 3,821,228
Total EAC 34,288,109
Royal Netherlands Embassy in Mozambique € 10,000,000 12,937,000
Total REACT 47,225,109
This annual review is for DFID funding of REACT, and includes the Africa Regional Department and DFID Tanzania attributed results.
What are the expected results?
The expected results are as follows:
Impact (by 2017)Growth of renewable energy and adaptation to climate change sectors in the East African Community
10%-12% of population benefiting from improved renewable energy services in East Africa 3%-5% of smallholder farmers benefiting from climate change adaptation services in East Africa
Outcome (by 2016 – end of project)To catalyse private sector investment and innovation in low cost clean energy and climate change adaptation that have significant development returns and can promote wider systemic impact
1 Donor contributions to REACT are taken from an AECF consolidated income schedule provided for the Annual Review. They differ slightly from amounts published in the REACT Annual Review due to foreign exchange contingencies.2 DFID Kenya’s contribution was for Round 2 of REACT. DFID Kenya attributed results are reported separately.
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6 REACT business models and technologies implemented that have potential to stimulate wider systemic impact
Output 1 (by 2016)Mechanisms in place to identify, select, support and monitor projects to ensure they achieve improvements in market systems in ways that benefit the poor
100 concept notes received (cumulative) 40 business plans produced and approved (cumulative) 20 REACT contracts signed by AGRA to value of $15m (cumulative) $15m total disbursements made
Output 2 (by 2016)Projects and business ideas selected and funded by REACT are innovative and demonstrate that new business models can have positive climate change and development impacts
50% of REACT approved projects are marked 3 or above on the AECF innovation scale 225,000 rural people benefit from products and services that help them to adapt to climate
change 1,275,000 rural people served by low cost clean energy products and services provided by
REACT projects
Output 3 (by 2016)Projects and business ideas on clean energy and climate technologies selected by the AECF are commercially viable and demonstrate profitable private sector businesses
40% of projects are profitable 36 months from date of contract 10% of repayable grants are repaid within 12 months of due date $37.5m of matching funds invested in REACT projects 1,500 new private sector jobs created in climate adaptation and low carbon growth businesses 32,500 rural businesses providing low cost clean energy products and services through REACT
projects
What is the context in which UK support is provided?
Estimates for Sub-Saharan Africa suggest that almost 600 million people do not have access to the electricity grid. The total generating capacity of the 48 countries of Sub-Saharan Africa was 68 GW in 2010 but without South Africa, only 28 GW. Moreover, 25% of this capacity is not available due to ageing plants and lack of maintenance. To make matters worse, energy generating capacity in Africa has grown at an annual rate of less than 3% since 1980 whilst demand has been increasing at 5%.
For the business sector, the unreliability of power supply is a major issue. Businesses experience power outages of 56 days per year and are forced to maintain expensive back-up diesel generation capacity, which can cost up to 40c per KWh. This results in significant costs equivalent to 6%-16% of turnover, produces productivity losses of up to 4% of a country’s Gross Domestic Product (GDP) and renders Africa’s businesses uncompetitive on the international stage. The low availability of power has become a binding constraint to growth – inadequate power infrastructure is estimated to reduce growth rates by about 2.1% per year in Africa.
Government utilities have failed to deliver adequate and competitively priced on-grid electricity to the business and household sectors. There is therefore increased interest in the potential role of the private sector in addressing power shortages while simultaneously helping to achieve development objectives in a way that maximises the opportunities and reduces the risks posed by climate change.
In East Africa, engaging the private sector to address power shortages through low carbon and
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renewable technologies can provide significant benefits:
Only around 5% of the rural population in East African countries has access to power. Rural households are forced to spend a large proportion of their incomes on expensive kerosene (at risk of rising oil prices) for lighting and wood and charcoal (at risk of diminishing supplies) for cooking. These sources make it difficult for children to study at night and affect safety and security in the home, especially for women and children. Switching to cleaner, safer and reliable solutions, such as solar or wind power for lighting and bio-gas, briquettes or ethanol for cooking, is persuasive.
Lack of energy holds back private sector growth. It reduces the productivity of businesses and the lack of grid power forces rural businesses to generate electricity from off-grid diesel at a cost up to US$ 0.40/Kwh. Renewable energy is cheaper at foreseeable oil prices. For example, a combination of solar and wind, whilst more expensive to purchase, would reduce the cost of power generation for telecommunication masts to a quarter of the current costs, providing pay-back within three years.3
Africa has a highly variable and unpredictable climate that is not fully understood because of lack of sound data. The literature suggests that the climate in many African countries 20 to 30 years from now will be different from today with greater frequency and intensity of extreme events such as droughts and flooding. The risks from severe climate change can be mitigated to some extent by diversifying power supply sources and through adaptation initiatives.
Mobilising the private sector to benefit the poorThe private sector can potentially play a major role in addressing climate change challenges and household and business needs by exploiting business opportunities presented by demand for low carbon and adaptive technologies. But there are barriers for the private sector to operate profitably in this context. Innovation to improve market access for the poor is hampered in Sub-Saharan Africa by:
a poor investment climate caused in part by Government inertia, unfavourable and inconsistent fiscal regimes, inefficient state-owned utility providers with unclear grid expansion plans and poor rural infrastructure
a lack of competitive pressure for businesses to innovate, including a lack of consumer purchasing power and institutional channels to express challenges and needs
pervasive market failures and lack of information on the needs of the poor, including lack of access to finance (both for suppliers of renewable energy and consumers), lack of technological awareness, lack of information about the benefits of clean energy and deeply ingrained purchasing behaviours of rural consumers
uncertainty over the commercial returns to pro-poor innovation in the light of an absence of supportive Government policy, a clear lead on the future renewables landscape and the propensity of poor household and SME customers to pay prices for energy that offer an acceptable margin
The endorsement of innovative ideas by REACT operated by a credible intermediary (i.e. AECF) and the offsetting of project risk through financial and other forms of support, help to offset these constraints:
REACT helps the private sector to invest more in low cost, clean energy for farmers, rural businesses and households. Biogas from waste or solar power projects could provide new sources of renewable energy that enable East African countries to leapfrog old technologies. To do this successfully, businesses need help in the form of finance to test and consolidate new business models which (i) prove the concept through a combination of imported components and local content production which make products more affordable, (ii) experiment with marketing methods and distribution channels, (iii) build consumer confidence, and (iv) develop profitable markets at a larger scale.
REACT also supports the private sector to develop and introduce new products and services that help smallholder farmers adapt to climate change. For example, increasing water efficiency in agriculture or new varieties of drought resistant seeds could help to guard against crop failure when rains are unreliable. Improved weather forecasting services may increase resilience to
3 This claim made by a clean energy supplier is confirmed by Vodacom Tanzania – see Annual Review 2012.
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extreme weather.
Section A: Detailed Output Scoring
Output 1: Mechanisms in place to identify, select, support and monitor projects to ensure they achieve improvements in market systems in ways that benefit the poor
Output 1 score and performance description:
Score: A++
All indicators substantially exceeded targets for 2012, the last period for which there is detailed verified data available. (Note: companies are contracted to report in January and July of each year, with monitoring visits taking place in the following months to verify reported data.) Judging by unverified data for the period to July 2013, REACT rounds 1 and 2 should continue to exceed output targets.
The extent to which milestone achievements have been exceeded for indicators 1.1 to 1.4 suggests that revision of planned milestone metrics is warranted. With two rounds completed, however, and no further rounds planned because funding has been used for rounds 1 and 2, we do not recommend revision of milestones.
Progress against expected results:
Indicators Milestone2012
Achieved2012
1.1 Number of concept notes received (cumulative, 50 per round) 100 427
1.2 Number of business plans: produced (cumulative) approved (cumulative)
40 49
20 36
1.3 Number of REACT contracts: signed by AGRA (cumulative)total value (US$ million, cumulative)
10 15
7.5 10.15
1.4 Total disbursements made (US$ million, cumulative) 2.5 4.28
Recommendations:
1. REACT currently reports separate figures achievement against milestones for Tanzania and Kenya, and combines other EA countries (Rwanda, Uganda and Burundi) into a single figure. If additional support for REACT were provided ( for additional rounds), it would be helpful for purposes of tracking and analysis if the performance data for all EA countries were to be reported separately.
Impact Weighting (%): 30%
Revised since last Annual Review? N
Comment:Since the success of the application process, including due diligence assessments and contracting is a vital part of risk management and is testament to the companies’ commitment to the programme, it is reasonable that Output 1 should attract a weighting of 30%. It is therefore not proposed to recommend a change to the weighting.
Risk: Low
Revised since last Annual Review? YNo risk assessment was provided in 2012 as this output was introduced subsequent to that Review. Considering the high level of interest already shown by applicants and the efficiency and effectiveness
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of REACT (AECF) internal systems and processes to get companies to contract and beyond, combined with the fact that no significant risks have come to light during this Review, the risk assessment is low.
Output 2: Projects and business ideas selected and funded by REACT are innovative and demonstrate that new business models can have positive climate change and development impacts
Output 2 score and performance description:
Score: A
This scoring is based on two indicators substantially exceeding their targets and one achieving 75% of its target. The under-achieving indicator (2.2) is particularly important in the mix of technologies in the REACT portfolio and relates to adaptation – with further comment on this performance below. Judging by unverified data for the period to July 2013, indicators 2.1 and 2.3 should continue to exceed output targets.
Indicators 2.2 and 2.3 are important for DFID reporting on results. The Operational Plans for both Tanzania and Kenya have a climate change indicator on number of people better able to cope with the effects of climate change. Africa Regional Department (ARD) has a climate indicator on number of people with improved access to low carbon energy. This REACT indicator wording was changed to be more consistent with the relevant ICF KPIs and DFID Departmental Results Framework (DRF). REACT has started to make a real contribution to the achievement of results.
The extent to which milestone achievements have been exceeded for indicators 2.1 and 2.3 suggests that some revision of planned milestone metrics is warranted. In addition, there appears to be limited logic to the progression of planned milestone metrics in the logframe. With two rounds completed, however, and no further rounds planned at present, we do not recommend wholesale revision of milestones.
Progress against expected results:
Indicators Milestone2012
Achieved2012
2.1 Percent of REACT approved projects (for funding) that are marked 3 or above on the AECF innovation scale 50% 85%
2.2 Number of rural people benefitting from products and services that help them adapt to climate change ('000s) 5 3.72
2.3 Number of rural people served by low cost, clean energy products and services provided by REACT projects (‘000s) 25 32.48
The failure to achieve indicator 2.2 suggests a number of possible causes:
(i) Ineffective marketing and promotion that does not make it clear what adaptation is and what kind of companies are eligible – in this respect, the use of the word “adaptation” may not resonate with eligible companies, most of which are in the agri-business sector and would not necessarily consider themselves to be in the climate adaptation sector, or would not understand what “adaptation” is;
(ii) Eligible companies might be catered for adequately in the market system and might not require support to develop their businesses (given the disadvantages of having to engage with the high level of bureaucracy and the intrusive due diligence process);
(iii) The existence of competing sources of support for agri-businesses, including the AECF agri-business windows, which provide adequately for adaptation technologies, of which climate-related innovation for agriculture is a common type of application.
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Recommendations:
1. REACT should take appropriate action to increase the number of adaptation businesses in REACT
Impact Weighting (%): 35%
Revised since last Annual Review? NRisk: Low-Medium
Revised since last Annual Review? YThe risk assessment provided in 2012 for this output was based on a slightly different set of indicators and was revised subsequent to that Review. Considering the very good performance on two indicators (2.1 and 2.3) – both of which are low risk – and the evident smaller number of applicants for adaptation grants, the overall risk assessment should be raised to medium to reflect the difficulties of recruiting acceptable quality, viable businesses with climate adaptation innovations. It is concluded that by raising the risk level, attention can be drawn to risk mitigation actions by REACT to ensure that this indicator can be achieved in future years, or in future rounds.
Output 3: Projects and business ideas on clean energy and climate technologies selected by the AECF are commercially viable and demonstrate profitable private sector businesses can sell products that improve the lives of poor people
Output 3 score and performance description:
Score: A
This scoring is based on two indicators substantially exceeding their targets (3.3, 3.4), one achieving 64% of its target (3.5) and two indicators not yet measurable as opening milestones have yet to be reached. The under-achieving indicator (3.5) is particularly important as it measures the number of direct SMEs and indirect VLEs (village level entrepreneurs) reached by RE businesses – further comments below. Judging by unverified data for the period to July 2013, indicators 3.3 and 3.4 should continue to exceed output targets, and 3.5 will achieve its output target of 5,000 businesses in 2013 (as of September 2013 6,000 businesses were providing services).
The extent to which milestone achievements have been exceeded for indicators 3.3 and 3.4 suggests that some revision of planned milestone metrics is warranted. In addition, there does not appear to be any obvious logic to the progression of some planned milestone metrics. With two rounds completed, however, and no further rounds planned at present, we do not recommend wholesale revision of milestones.
Progress against expected results:
Indicators Milestone2012
Achieved2012
3.1 Percentage of projects that are profitable 36 months from date of contract 0 0
3.2 Percentage of repayable grants that are repaid within 12 months of due date 0 0
3.3 Value of matching funds invested in REACT projects (US$ million) 2 9.28
3.4 Number of new private sector jobs created in climate adaptation and low carbon growth businesses 100 242
3.5 Number of rural businesses providing low cost, clean energy products and services through REACT projects 500 318
Indicator 3.3 masks an important systemic market learning issue and one that achieving the DCED (Donor Committee on Enterprise Development)4 standard would require – the leveraging
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of institutional finance (commercial banks, MFIs, IFIs, impact investors, etc) and supplier credit, on the one hand, should be distinguished from access to personal sources (family, friends) and to the entrepreneur’s own resources (savings, “sweat” equity, previous project-related expenditure), on the other. Financial markets segment into those that work adequately for the poor and for new businesses, and those that are effectively closed to all new businesses, whoever their owner might be. It would be helpful to an understanding of the role of REACT in improving the functioning of institutional financial markets for high risk innovation start-ups if this indicator could be sub-divided into (i) total matching funds (REACT already records this) and (ii) total institutional matching funds (which REACT already records for each project).Furthermore, to be consistent with ICF private financing requirements requires that only developed country finance can be counted as private finance - private finance should be disaggregated into developing and developed country finance.
Indicators 3.4 and 3.5 require further clarification. At present, indicator 3.4 does not distinguish between jobs created (i) directly in REACT project companies and (ii) indirectly in their business-to-business value chain e.g. suppliers, dealers, distributors and agents. Similarly, indicator 3.5 does not make it clear that numbers should include the self-employed and the value chain. To understand how pervasive the value chain benefits of REACT’s investments can be, and to capture these wider, indirect job and business creation benefits, the indicators need modest revision to be compliant with the DCED standard.
The indicators do not currently capture gender achievements – the DCED standard requires that milestones and achievements be disaggregated into male and female metrics. A breakdown supplied by REACT for this Review indicates that, for indicator 3.4, the male/female achievement was 162 male FTEs and 80 female FTEs. A gender breakdown was not recorded for indicator 3.5.
Recommendations:
Investigate with REACT the revision of the logframe Output indicators as follows:
1. Indicator 3.3 - Value of i) total and ii) institutional matching funds invested in REACT projects (US$ million)
2. Indicator 3.4 - Number of new private sector jobs created (i) directly in REACT companies and (ii) indirectly in REACT companies' value chains (‘000)
3. Indicator 3.5 - Number of REACT companies and rural businesses/self-employed in REACT companies' value chains providing climate adaptation and renewable energy products and services
4. Indicator 3.4 should be disaggregated into male/female milestones with appropriate metrics based on recent achievements or from comparable metrics gleaned from the AECF wider windows. Data should be collected and recorded to measure achievements against these milestones.
Impact Weighting (%): 35%
Revised since last Annual Review? NRisk: Medium
Revised since last Annual Review? NConsidering the nature of businesses coming forward (80% start-ups, mostly renewable energy) and the small number of applicants for adaptation grants, the overall risk assessment seems appropriate based on the evidence for the time being. If there is a tendency to a different risk rating, it is towards medium-high – the current portfolio of innovative renewable energy
4 The DCED Standard brings together the minimum elements needed for credible results measurement and is built around the logic of the individual programme: why is it doing what it is doing? It recommends three Universal Impact Indicators (scale, income and jobs) that programmes should measure.
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(RE) and adaptation projects suggests a large degree of uncertainty about eventual outcomes i.e. the potential for a high rate of failure, low job creation, low new business generation and an unpredictable impact on carbon emissions.
Section B: Results and Value for Money
1. Progress and results
1.1 Has the logframe been updated since the last review?Yes. The logframe was revised in July 2013. The previous logframe made it difficult to measure operational progress, for example in identifying and contracting appropriate projects. It was also revised to include more realistic targets and milestones based on the portfolio of businesses supported in round 1 and round 2. Key revisions included dropping financial services and dissemination outputs in favour of three achievable and relevant climate change outputs. The original logframe was based on a more speculative, potential portfolio of business ideas. By using rounds 1 and 2 as benchmarks, greater realism was brought to the logframe. Meetings between DFID and the Fund Manager were held in 2013 after the first round of monitoring and evaluation (verification of results) was completed.
1.2 Overall Output Score and Description:A+ outputs moderately exceeded expectation
REACT has made significant progress since the 2012 Annual Review. It achieved and exceeded comfortably seven out of nine indicators, with two indicators between 64% and 75% achieved, and another two yet to become achievable.
1.3 Direct feedback from beneficiariesInterviews were conducted with 13 grantee companies as well as with their dealers, agents and customers (end users). The CEOs of 13 companies were interviewed (out of total universe of 34 grantee companies) focusing on company details, business model, technology, customers and REACT processes. Full details of the interviews are provided in a separate annex.
In summary, grantee companies were employing a wide range of RE technologies (solar, hydro, biomass, wind) or were selling a small number of adaptation products (weather insurance); they were mostly start-ups (80%) owned by non-national entrepreneurs; and they were serving rural households (mainly farmers) and rural SMEs (typically self-employed people or micro-businesses).
The grantees were very willing to provide details of their activities and to discuss the performance of REACT:
They were universally complimentary about REACT and the REACT staff. They typically had heard about REACT from advertisements, or through networks of friends and
businesses, or from the website. Six out of 13 companies reported that the REACT process stretching from application through
to contract was onerous, too slow and unnecessarily complicated and were of the opinion that it could be revised to permit a quicker grant decision.
Ongoing reporting requirements did not present a significant burden. Five out of 13 companies would not have proceeded with their innovation if they had not
received the REACT grant and a further eight would have proceeded but taken far longer (several years) to bring it to fruition.
Ten out of 13 companies were confident about the market and saw more than enough growth ahead to justify their investment, notwithstanding the advent of competition – although most grantees were unperturbed about competition, claiming that there was none affecting their business.
End-user beneficiaries (customers) of REACT companies provided the following feedback:
Most end beneficiaries interviewed for this annual review were not the poorest people – there was clear evidence of an income from cash crops (bananas, coffee, milk, eggs, etc) and all interviewees had solid brick houses with several owning TVs, comfortable furniture and motor
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bikes. But this may not be representative of the whole REACT portfolio. They were generally very satisfied with their purchases. The main benefits to customers were:
savings of approximately KSh100 per week on the purchase of kerosene; the convenience of not having to walk several kilometres to fetch fuel sometimes on a daily basis; and health and safety, especially for children around the home.
They financed the purchase by making a down payment and paying off the balance over several months, or paying on a pay-as-you-go basis – repayments were either fixed, or varied according to the ability to pay and could be made using M-PESA on a daily, weekly or monthly basis. Payment patterns observed in one company demonstrated clearly that customers paid what they could when they could although they were careful to meet their agreed monthly repayment targets.
Their suppliers (REACT companies) were often generous with payment terms, for example, one agent installed solar powered lighting without obligation to allow the customer to try it out in his business before agreeing to purchase.
1.4 Summary of overall progressREACT has made significant progress since the 2012 Annual Review. REACT has approved 34 companies and has been disbursing funds to enable companies to pursue their launch plans. A total of $23.5 million out of $25.8 million REACT funds (rounds 1 and 2) has been committed. The outstanding balance is likely to be committed to a company which has been late in getting its financing in order.
From the sample of 13 companies visited as part of the annual review, most had begun to trade or were far advanced in their plans to launch the business. In all cases, beneficiaries (customers) of these companies were very satisfied with their purchases and were reaping the benefits created by a predictable supply of power – mainly for household or business lighting and mobile phone charging – which included savings of around KSh100/week (for Kenya), the convenience of not having to trudge miles to fetch kerosene, wood or charcoal and health and safety advantages.
Monitoring has been improved with the recruitment of a fulltime REACT M&E Officer and grantees are visited twice a year for verification purposes after reporting their progress against KPIs.
1.5 Key challenges
Attracting sufficient numbers of good quality adaptation proposalsAs mentioned in relation to Output 2, REACT has not attracted or approved sufficient numbers of good quality adaptation proposals. Specific marketing for adaptation was undertaken, but responses were still limited. An analysis of grantee response to marketing through the application, due diligence and contracting phases might reveal reasons for the low uptake by adaptation companies – the need for analysis of why climate adaptation entrepreneurs are not coming forward in sufficient numbers is desirable before further adaptation rounds and help target those rounds.
Slow application, due diligence to contracting processThe process of selecting, assessing, approving and contracting grantee companies remains long (an average of just under eight months for round 2, down from over ten months for round 1). While the need to apply a stringent risk reduction framework to inherently risky start-ups and early stage technology companies is paramount and should override the disadvantage of a long wait (and consequent costs of indecision) for prospective grantees, more needs to be done to reduce further the delay in getting the grantee companies to the launch pad.
REACT’s experience is in line with the AECF as a whole and it is anticipated that changes to the governance and reporting arrangements for the AECF could enable AECF to review its contracting processes and bring about shorter lead times.5
Approach to higher than anticipated project riskThere are concerns about the risks associated with the high proportion of start-ups (80%).6 Two
5 Nathan Associates, MDY Legal and Social Finance. Legal, Governance and Financial Due Diligence Study of the Africa Enterprise Challenge Fund. June 26th 2013.
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companies dropped out during the contracting stage (December 2012 and February 2013). In both cases, mutually agreed deadlines set for reaching REACT contracting closure were not met. Another company has been approved and will take their place.
One company has already failed. It was awarded funding in round 1 to provide financing to the poorest people across East Africa. In March 2013 the company hit a cash crisis and was declared insolvent. REACT secured a court ruling requiring the company to return the repayable grant already disbursed.
Some of the grantee companies have “first mover” advantage, but in many ways the propensity to identify and manage start-up risks in clean energy and climate adaptation markets is a function of the experience and management competence of the entrepreneur. It is evident that a number of business owners do not have the necessary experience and/or managerial competence proactively to manage and mitigate risk. While unnecessary identifiable risks should be eliminated or mitigated through management action, some risk is a natural characteristic of new businesses in high or leading edge technology industries. REACT should continue to apply robust project selection and due diligence processes and a strict monitoring regime to identify risks and ensure that grantees have plans to deal with them.
In addition, the possibility of providing technical assistance (TA) to grantee companies should be viewed in the light of (a) risks identified during the application and due diligence processes and (b) new risks emanating from product and market development activities, or from emerging organisational capacity weaknesses. Whereas the former are dealt with to some extent by e.g. REACT declining their application and recommending that they approach other sources of support, such as the Kenya CIC (Climate Innovation Centre) and other SME support sources, the latter pose a more intractable challenge. If UK funding were extended the provision of TA should be re-assessed as a means of supporting REACT grantee companies where existing and new risks are diagnosed as threatening the survival of the business.
1.6 Annual Outcome AssessmentREACT’s Outcome is to catalyse private sector investment and innovation in low cost clean energy and climate change adaptation that have significant developmental returns and can promote wider systemic impact.
The REACT portfolio covers a wide range of Renewable Energy Technologies (RETs), both in terms of type of technology and the capacity of its use. A range of viable renewable energy resources have been utilised by using different technologies in the existing portfolio. The diversity and range of the REACT portfolio is seen in terms of type of technology, capacities, applications, business models and geographical coverage.
The companies in contract for Rounds 1 and 2 can be expected to provide a significant contribution to the realisation of the expected Outcome:
REACT has catalysed $9.28 million private investment in grantee companies pursuing low cost clean energy and climate adaptation products and services.
There are early signs of developmental impact with new private sector jobs being created and new businesses generated, including Village Level Entrepreneurs (VLEs).
Households are benefiting from clean energy – 32,480 rural people are now served by renewable energy products and services – and benefiting from climate adaptation products and services (3,700).
In terms of systemic change, there is circumstantial evidence of REACT having an influence on:
Investor attitudes and behaviour – impact investors, private equity and venture capital funds are becoming active in the region. All are in search of a good quality pipeline of companies which can show that they have overcome early stage obstacles including the risks associated with launching innovative products and services into relatively immature rural markets. But there is as yet no evidence of a change in behaviour of commercial banks.
Customer awareness, attitudes and buying behaviour – field visits demonstrated that end-user
6 AECF overall has 32% of its total portfolio made up of start-up businesses and 48% of the portfolio is classified as small business.
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beneficiaries (typically poor smallholders) were starting to use renewable energy products and services, convinced by the multiple benefits such as savings of more than KSH 100 per day (over the price of kerosene, charcoal or wood), the convenience of turning on a light or charging a phone without having to trudge several kilometres to the nearest village shop and improved health and safety in the home (particularly with children). Customers were prepared to put down deposits and pay off the cost of solar or biogas installations over a period of 12 months to realise these benefits.
REACT is starting to make marketing and support connections with other relevant organisations engaged in similar activities, such as the Climate Innovation Centre in Kenya, the Energy and Environment Partnership in Southern and Eastern Africa and country renewable energy agencies (REAs). These connections are likely to benefit the REACT programme if it were expanded to future rounds and could lead to more systematic interaction among the various stakeholders in the renewable energy and climate adaptation industries.
Three questions need to be addressed:
Can the broader results be attributed wholly or partly to REACT? Some of the results, such as matching funds raised, jobs created and businesses generated can be fully attributed to REACT as they exist only because of REACT. Systemic change, as described above, is likely to happen at least in part because of REACT but also as a result of local competition intensifying as the market matures.
Is there additionality? Although establishing the counter-factual is particularly unreliable in a semi-structured interview process, our interviews with 13 grantee companies found that eight may have proceeded with their innovation if REACT funds had not been forthcoming, but would have been forced to (a) resort to a slower pace of start-up (typically a period of up to two years was cited) and (b) scour alternative financial sources for development funds, which would have diverted attention from more urgent innovation tasks. In the competitive race to secure market share, such delays could have impaired the viability of many companies; and it is clear from interviews that raising finance from commercial investors would have been far more costly than REACT funds.
Is there a technological innovation that is fundamental in nature? We found that the innovative component in the REACT portfolio is not always seen in the design or development of RETs per se, it is observed more in delivery and/or the business model that REACT grantees have adopted and piloted by using RETs.
Impact indicatorsThe impact statement is as follows:
Growth of renewable energy and adaptation to climate change sectors in the EAC
The statement refers to industry “sectors”, but the indicators refer to consumers i.e. population benefiting from improved renewable energy services; and smallholder farmers benefiting from climate change adaptation services. It is evident that the consumption nature of the indicators could be at variance with the production nature of the intended impact.A revised Impact statement is recommended. This requires consultation with project partners, but a potential change could be: Poverty reduction through use of renewable energy and adaptation to climate change technologies in the East African Community. Indicators should remain the same (apart from adding “products and” to each) as they measure appropriately the household and smallholder benefits that contribute to poverty reduction.
Outcome indicatorsA revision of the outcome indicators is recommended. The outcome statement is as follows:
To catalyse private sector investment and innovation in clean energy and climate change adaptation that have significant development returns/systemic impact
The statement places a heavy burden on the private sector to deliver (i) investment, (ii) innovation, (iii) development returns and (iv) systemic impact. These are over-ambitious objectives, and judged difficult to achieve by a small number of SMEs operating in the poorest
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markets.
A revised Outcome statement is proposed: To catalyse private sector investment and innovation in low cost clean energy and climate change adaptation. Indicator 1 should be revised to: Number of REACT business models and technologies implemented. There is no requirement for a revision of planned milestones and targets.New indicator 4: The Outcome statement lacks balance without a climate adaptation indicator. The benefits of adopting climate adaptation products and services lie mainly in improved agricultural yields, thus a new indicator is proposed as follows: Average annual growth in agricultural yields by smallholders benefiting from REACT climate adaptation products and services (%). Planned milestones and targets should be agreed with REACT.
2. Costs and timescale
2.1 Is the project on-track against financial forecasts: YesA DFID Accountable Grant Arrangement was put in place in 2010 to account for the initial investment of £10m. DFID Kenya agreed to contribute an additional £1m funding via the AECF Window in the 2012/13 Financial Year bringing the DFID funding limit to £11m.
Each payment has been split between Africa Regional Department Budget Centre, DFID Tanzania Budget Centre and DFID Kenya Budget Centre.
The latest financial reports indicate that the project is on track. At September 2013 after three years, the DFID funds disbursed amounted to £7.44 million (67.6%) out of a possible £11.0 million. Grantee companies had received £6.22 million (83.6%) out of the total disbursed to September 2013.
2.2 Key cost driversThe fee structure set out in the Project Memorandum determines that the Fund Manager receives 17% and AGRA 3% of the total funds invested. The Fund Manager’s fees were arrived at through an international tender process. Since REACT was origninally agreed the standard AECF across AECF for new agreements is that the Fund Manager receives 16% of the total value of each round and AGRA 4% over the length of the round. The key cost drivers are:
KPMG costs in managing and monitoring the challenge fund and the project portfolio, which include marketing, extensive work with potential applicants throughout the approval process, monitoring and costs associated with organising Investment Committee meetings. KPMG’s and AGRA’s management fees over six years amount to $7.84 million (16.6% of total REACT funds of $47.23 million), or an average of $1.31 million p.a. (a charge of 2.77% per year of total REACT funds).
AGRA fees cover costs of housing the financial aspects of REACT which amount to 2.6%.
The recent “Due Dilligence” governance studyError! Bookmark not defined. of the AECF stated that the cost of fund management compared favourably with fees (3%-5% per year of the fund) charged by impact investment fund managers and also with fund management costs of most other challenge funds and matching grant schemes.
2.3 Is the project on-track against original timescale: YesThe project is now on schedule after an early period of running behind schedule. The delays originally arose as a result of the lengthy selection, approval, due diligence and contracting process. This period has been cut down by approximately two months. Approved companies have been contracted, most have launched their businesses, and are starting to deliver results and benefits for households and farmers.
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3. Evidence and Evaluation
3.1 Assess any changes in evidence and implications for the projectWe are not aware of any changes in evidence that challenge the project design. REACT’s marketing and application process data confirm that demand for project funding from the private sector in the region remains high. Other sources of data have been examined and these confirm that the market is large, buoyant and probably growing.
3.2 Where an evaluation is planned what progress has been made?An evaluation is planned for programme closure. But it is not clear how this evaluation will be funded. The Fund Manager has indicated that there is insufficient resource available to them for this.7 Evaluation plans should be clarified. They will need to be consistent with AECF Committee agreement to commission an Evaluation Monitoring Unit to evaluate across AECF.
4. Risk
4.1 Output Risk Rating: MediumSee individual Outputs for specific ratings.
4.2 Assessment of the risk levelREACT is judged to be a medium risk project. It has started to produce results after initial delays in the application and approval process.
An updated assessment of project risks is as follows:
1. The private sector does not have the opportunity, capacity or resources to invest. [Low probability, high impact]
Renewable energy and climate adaptation businesses have invested and have demonstrated in most cases adequate capacity and personal resources to exploit market opportunities. This risk remains low.
2. Poor performance in AECF. [Low probability, medium impact]
The AECF has used its considerable experience in identifying and contracting with agri-businesses to provide full support to REACT, including the appointment of an experienced investment sub-committee. To date there is no evidence of under-performance by the ISC. This risk remains low.
3. Failure to deliver intended pro-poor benefits. [Medium probability, high impact]
The process of assessing and selecting companies capable of delivering pro-poor benefits is a risky one, since REACT has little direct control over grantee companies’ operations. Regular monitoring against the business plan should help to mitigate this risk, but it remains at medium.
4. Higher than expected level of REACT project failure. [High probability, high impact]
Project applicants may not have the capacity to implement proposals or market constraints (in particular, consumer awareness of benefits and propensity to change buying behaviour) could thwart grantee companies’ plans. The evidence is that the majority of companies are start-ups which, in combination with the costs of innovation, emergent technology and market access, indicates they are exposed to potential failure and hence the need for a raised risk level. This covers a) the risk of outright failure (insolvency) and b) the risk of failing to achieve long-term profitability and cash generation to meet the company’s obligations under the REACT contract. This risk should increase to high and impact to high.
7 DFID Internal Audit Report for REACT 2012.
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5. Successful REACT projects do not lead to systemic impact. [Medium probability, medium impact]
Systemic impact happens through a) replication of successful business models or b) policy change. Neither factor has so far been demonstrated with certainty. The risk remains at medium.
6. Duplication or lack of synergy with other initiatives. [Medium probability, low impact]
There are a growing number of initiatives working in the climate change development space but none so far focuses solely on the private sector. The risk remains at medium.
7. Too little or too much demand for REACT funds. [Low probability, low impact]
There has been considerable demand for REACT funds. The risk remains low.
8. Fraud and inefficient usage of funds by applicants. [Medium probability, high impact]
An additional fiduciary risk identified since REACT was launched is fraudulent and/or inefficient usage of REACT funds, which is always a risk in privately owned and managed companies where detailed financial information is not always transparent. The risk should be raised from low to medium.
9. A lack of effective donor coordination. [Low probability, low impact]
An additional risk identified at the 2012 Annual Review was a lack of effective donor coordination leading to increased transactions costs for the Fund Manager. This risk remains but is low.
Wider governance of AECFA “due diligence”, or governance, study of the AECF was carried out in 2013 to help inform consideration of the future of AECF by the AECF Board.8 The study raises a number of potential additional issues for REACT arising from the AECF’s legal, governance and financial structures.
The study noted that AECF has become an early stage impact investor in innovative agri-businesses through eight windows that address multiple development challenges in many markets. The study contends that its light touch business model makes it difficult to provide the level of supervision required by early stage impact investors and that its grant making role is likely to make it a passive instrument.
Market failures underpin AECF’s role and it is well positioned for this due to its project pipeline (4,456 PCNs). But it is not structured to bring about systemic change in individual markets which calls for sustained facilitation of stakeholder efforts to improve policy and regulation and market support functions.
AECF’s organisation should be light touch, yet the proliferating number of windows has increased the administrative burden on staff and REACT’s relatively higher risk profile in relation to the high proportion of start-ups requires sufficient due diligence and M&E resources to deliver a high quality service..
The amount of funding provided as non-recourse loans has exposed the AECF to greater operational costs and potential challenges in recovering loans. The study recommended the loan instrument should be reconsidered to ensure that the costs of collecting loan repayments do not become a burden and result in driving up the costs of fund management.
Following the study, AECF’s structure is being reconsidered with a view to changing to a different entity within AGRA. AECF is developing a longer term vision and strategy for such a change over the next few years. In the transition period existing windows of REACT will continue, including REACT, with a view to potentially moving to the new entity structure long term.
4.3 Risk of funds not being used as intendedThere is recent tentative evidence of one project not using funds as they were intended. REACT’s
8 Nathan Associates, MDY Legal and Social Finance. Legal, Governance and Financial Due Diligence Study of the Africa Enterprise Challenge Fund. June 26th 2013.
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investigation will lead to a report in due course. DFID’s Fraud Prevention Unit has been informed.
A second project has recently failed. REACT has successfully claimed back and received a proportion of the funds disbursed.
Fraud and inefficient usage of funds by applicants is an identified risk. It is judged to have a medium probability and high impact. Grantee companies are required to submit accounts to the Fund Manager on both a quarterly and an annual basis. Annual accounts of grantees are subject to an external audit. AGRA’s external auditor has included the AECF in its yearly annual programme.
REACT is managed by a professional Fund Manager who has set up sound due diligence and grant management processes and procedures. This involves assessments by the Fund Manager and investment committee of business plans, their commercial feasibility as well as the likely developmental impact. There are biannual site visits by the Fund Manager as part of the monitoring of grantees. Further steps have been taken including:
A full time risk and compliance manager appointed. Additional risk management procedures instigated. A Programme Risk Register developed. Risk and compliance project visits undertaken.
4.4 Climate and Environment RiskThere is a low risk from a climate and environmental perspective. Part of the screening process of the Fund Managers considers environmental and climate risks within business plans, although this screening is proportional to the number of applicants and resources available.
5. Value for Money
5.1 Performance on VfM measures
REACT was approved before the current DFID Business Case format and the Project Memorandum was not explicit in stipulating value for money measures. Moreover, value for money considerations need to be consistent at the level of the AECF, rather than at the window (REACT) level.
Challenge funds have shown strong impacts, high returns to donor investment and value for money. However, until more detailed information on results in available, it is not possible to validate these assumptions.
The financial performance of the AECF can be assessed against standard value for money indicators. The recent AECF due diligence review made several relevant VfM points about the fund:
1. Economy: a measure of the cost of the services provided to AECF It has very effective disbursement rates between 70% and 80% which should rise over the next
few years. KPMG’s fees for managing REACT over six years amount to $7.84 million (16.61% of total
funds of $47.23 million) or 2.77% of the total fund annually. AGRA fees cover costs of hosting the financial aspects of REACT which amount to 2.6%. The AECF’s cost of fund management compares very favourably with the 3%-5% p.a. charged by fund managers in the impact investment industry who commonly set up a separate technical assistance service paid for by investors. It compares favourably also with the management costs of most other challenge funds and matching grant schemes.9
The current contract is based on the assumption that the AECF operates as a challenge fund providing performance grants so the level of oversight required is expected to fall. To ensure that non-recourse loans are repaid and to monitor business performance,
9 Nathan Associates, MDY Legal and Social Finance. Legal, Governance and Financial Due Diligence Study of the Africa Enterprise Challenge Fund. June 26th 2013.
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however, the costs of oversight are unlikely to fall. The opening of new windows has been driving the cost base of AECF, which has negated any potential economies of scale.
Debt funds typically charge 1%-2% annual management fees with no performance fee; whereas equity funds – closer to the AECF – charge 3%-5% annual management fees with no performance fee. Technical assistance costs are additional to these fees.
A benchmarking study in 201010 fund that the total cost of administering the AECF was not out of line with similar challenge funds.
2. Efficiency: how efficient AECF is in comparison to other funds of a similar nature Matching grants ensure that the recipient has commitment to the project. The AECF review
found that half a billion dollars has been invested in enterprises from an AECF injection of $121.6 million, an average leverage ratio of 3.1. Leverage was highest in REACT at 4.9.
AECF has a failure rate of six projects out of the initial 84 contracted, representing 7% of the portfolio. Challenge funds are widely believed to have 20% star performers, 50% satisfactory performers and 20% failures. At this early stage, REACT has lost one company out of 34 and another two companies have been forced to drop out because of problems securing finance.
3. Effectiveness: a measure of the development impact of the AECF Total Development Impact has been used in the AECF governance study to measure the
effectiveness of the AECF. Data collected is (i) impact at household level (number of households benefitting multiplied by the average benefit per household) and (ii) impact on employment (number of jobs created multiplied by the wage). The Development Rate of Return (DRR) is the total development impact divided by the value of disbursed funds and the annual DRR is the total divided by the number of years of operation of the project.11
This could be used as a measure in REACT. Although it is premature to measure REACT’s DDR – many projects have not been running long enough – REACT measured its average net benefit per household at $7812 in 2012 with a range from $5 to $393 for those companies recording sales. Evidence from some of the 13 companies we interviewed suggests tentatively that impact could be much higher for the more successful grantee companies.
Innovations in REACT could have a significant impact on social conditions e.g. if innovation leads to the provision of electric power to households for the first time, there could be a transformative impact on people’s lives that is not captured by the development impact numbers.
5.2 Commercial Improvement and Value for MoneyWhereas the Fund Manager is always looking for efficiency savings, the REACT window has components that can lead to inefficiencies: (i) the higher risk associated with start-ups will require the commitment of a higher level of resources than established businesses, and (ii) collecting loan repayments will drive up administration costs. It is difficult to see where VfM efficiency gains can be made.
At grantee level, the Fund Manager is responsible for checking that procurement processes followed by grantees are transparent and involve fair and open competition between suppliers.
5.3 Role of project partnersKPMG is the Fund Manager of REACT with direct oversight provided by AGRA. We have discussed governance and due diligence issues above.
10 Bester, H and C. Hougaard. AECF Benchmarking: A comparative value for money analysis. June 2010.11 The AECF review reports that household level numbers were more trustworthy than employment numbers but suffered from reliability issues. The numbers were self-reported by beneficiaries so are open to abuse and bias.12 The calculation of net benefit is based on the last hard metric reported by a company and a net benefit model that estimates net household savings as a result of a solar PV system displacing a portion of expenditure on kerosene, candles, dry cell batteries and mobile phone charging.
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Other DFID partners are:
SIDA (Tanzania) – their interest in the RE sector is high but there are concerns about:
Potentially unwarranted subsidies to industry sectors causing market distortions and inhibiting market development.
A lack of effective coordination of donor support to RE and adaptation companies. A lack of overt cooperation with Government and public sector agencies.
Danida (Kenya) – Danida has recently reviewed the Kenya REACT project and made the following observations:
REACT is “more challenging and slower than original envisaged” largely because of slow assessment, project approval and contract preparation.
AECF strategy and governance are of concern, but the AECF due diligence review is expected to provide recommendations to remedy these concerns.
There is concern about development impact and why it will take so long to measure benefits to the poor.
Grantee agreements and loans will expire after the termination of Danida’s support to REACT and up to two years after the termination of the current KPMG contract.
The review recommended that the agreement with AGRA should be amended to ensure that the repaid grants and interest can be used for agreed project activities in Kenya; and the Embassy should pursue its concerns about the AECF governance and basket fund structure with the AECF Governing Council and AGRA.
Royal Netherlands Embassy (Mozambique) – as a new window, the Mozambique fund has not been included in this review.
5.4 Does the project still represent Value for Money : YesPartial evidence above shows that REACT is offering satisfactory value for money based on limited data capture to date.
Value for money indicators should be included in future REACT reporting. Measures need to be defined with REACT but the following could be considered:
Leverage ratio of private matching funds (including personal sources) to REACT funds. Leverage ratio of private institutional funds (excluding personal sources) to REACT funds. Failure rate of REACT companies, in terms of (i) number of companies failed vs total number of
companies supported, and (ii) value of losses vs total value of committed funds. Average net profit margin of REACT companies from year two onwards. Amount of loans repaid vs total repayable loans disbursed. Benefit to cost ratio of selected low-carbon technologies. Impact measured at (i) the household level (number of households benefitting multiplied by the
average benefit per household) and (ii) the employment level (number of jobs created multiplied by the wage).
Development Rate of Return (DRR) – the total development impact divided by the value of disbursed funds.
Annual DRR – the total development impact divided by the number of years of operation of the project.
6. Conditionality
6.1 Update on specific conditionsNo conditions are attached to REACT funding. The initial DFID funding of £11 million has been committed and will be disbursed as grantee companies report biannually on their progress and set out their financial requirements.
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7. Conclusions and actions
REACT has made good progress towards the Outputs since the 2012 Annual Review. Several indicators have been achieved and in some cases exceeded. The companies contracted in Rounds 1 and 2 are starting to make a significant contribution to the realisation of the project Outcome.
DFID has an important role in the overall management of the AECF through the AECF Board, and through it the REACT project. Some of the issues raised by this Annual Review should be addressed through that forum to ensure consistency of approach.
Actions by REACT within the next six monthsBuilding on the results of the Annual Review, the Fund Manager should undertake the following actions:
1. REACT currently reports separate figures for Tanzania and Kenya, and combines other EA countries into a single figure. With the possible growth of REACT (current and future rounds), it would be helpful for purposes of tracking and analysis if the performance data for all EA countries were to be reported separately.
2. If additional support were provided for further rounds then all milestones should be revised using the achievements of rounds 1 and 2 as a basis and should provide annual increments based on an acceptable logic e.g. decelerating marginal increments, ideally using REACT prior years’ achievements or some other comparable AECF window.
3. REACT should investigate why adaptation companies have not applied in large enough numbers, and/or why a larger number has not made it through the application process to contract and start-up, and take appropriate action to increase the number of adaptation businesses in any further REACT rounds.
4. Although REACT has commendably reduced the application and contracting processing time, more needs to be done to reduce further the delay in getting the grantee companies to the launch pad.
5. REACT should continue to apply robust project selection and due diligence processes and a strict monitoring regime to identify risks and ensure that grantees have plans to deal with them.
6. Value for money indicators should be included in future REACT reporting, and the following should be considered for inclusion:
Leverage ratio of private matching funds (including personal sources) to REACT funds. Leverage ratio of private institutional funds (excluding personal sources) to REACT funds. Failure rate of REACT companies, in terms of (i) number of companies failed vs total number of
companies supported, and (ii) value of losses vs total value of committed funds. Average net profit margin of REACT companies from year two onwards. Amount of loans repaid vs total repayable loans disbursed. Benefit to cost ratio of selected low-carbon technologies. Impact measured at (i) the household level (number of households benefitting multiplied by the
average benefit per household) and (ii) the employment level (number of jobs created multiplied by the wage).
Development Rate of Return (DRR) – the total development impact divided by the value of disbursed funds.
Annual DRR – the total development impact divided by the number of years of operation of the project.
Actions by DFID, in cooperation with REACT, and within the next six months1. The logframe indicators should be revised as follows:
Indicator 3.4 - Number of new private sector jobs created in climate adaptation and renewable energy companies (i) directly in REACT companies and (ii) indirectly in REACT companies' value chains
Indicator 3.5 - Number of REACT companies and rural businesses and self-employed in REACT companies' value chains providing climate adaptation and renewable energy products
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and services
2. Work with REACT for both the above indicators to be disaggregated into male/female milestones with appropriate metrics based on recent achievements or from comparable metrics gleaned from other AECF windows. Data should be collected and recorded to measure achievements against these milestones.
3. A revised Impact statement is required. A potential statement is: Poverty reduction through use of renewable energy and adaptation to climate change technologies in the East African Community. Indicators should remain the same (apart from adding “products and” to each) as they measure appropriately the household and smallholder benefits that contribute to poverty reduction.
4. A revised Outcome statement is required. A potential statement is: To catalyse private sector investment and innovation in low cost clean energy and climate change adaptation. Indicator 1 should be revised, possibly to: Number of REACT business models and technologies implemented. There is no requirement for a revision of planned milestones and targets.5. A new indicator 4 is required because the Outcome statement lacks balance without a climate adaptation indicator. The benefits of adopting climate adaptation products and services lie mainly in improved agricultural yields, thus a possible new indicator is: Average annual growth in agricultural yields by smallholders benefiting from REACT climate adaptation products and services (%). Planned milestones and targets should be agreed with REACT.
6. The provision of TA should be assessed, if there were to be additional DFID support, as a means of supporting REACT grantee companies particularly where existing and new risks are diagnosed as threatening the survival of the business.
7. DFID and REACT should establish clear plans for an evaluation and identify what resources would be needed. They will need to be consistent with AECF Committee agreement to commission an Evaluation Monitoring Unit to evaluate across AECF.
8. Review Process
This review was informed by an independent review by Climate, Environment, Infrastructure and Livelihoods PEAKS contractors Peter Wilson and Akanksha Chaurey. DFID, lead advisers were from Africa Regional Department (Gareth Martin), DFID Tanzania (Magdalena Banasiak) and DFID Kenya (Virinder Sharma). The KPMG REACT Fund Manager and AECF Tanzanian Representative provided additional material for the Review.
ConsultationsConsultations were undertaken with the following people:
DFID ARD, DFID Tanzania and DFID KenyaGareth Martin, Senior Climate Change Adviser, ARD
Sarah Lester, ARD
Magdalena Banasiak, Climate Change Adviser, DFID Tanzania
Richard Boulter, Sustainable Growth Team Leader, DFID TanzaniaGill Rogers, PSD Adviser, DFID Tanzania
Asifiwe Mutaki Uki, Programme Assistant, Sustainable Growth Team, DFID Tanzania
Virinder Sharma, Climate Change Adviser, DFID Kenya
Elizabeth Mwihaki, Programme Assistant, DFID Kenya
Rose Ndungu, Operations Manager, REACTLilian Gathara, Grants Manager, REACT
Laura Kelly, Risk and Compliance Manager, AECF
Alexandra Mandelbaum, AECF Country Representative, Tanzania
Eliguard Dawson, REACT Executive, Tanzania
Aly Breedlove, M&E Manager, REACT Tanzania
Rural Energy Agency (REA)Dr Lutengano Mwakahesya, Director General
Eng Bengiel Msofe, Director Technical Services
Tanzania Renewable Energy Association (TAREA)Dr Matthew Matimbwe
Environment Adviser, Vice-President’s OfficeDr Julius Ningu, Director of Environment
Big Results NowDr Mary Shetto, Principal Agricultural Research Officer
Kenya Renewable Energy AssociationCharles Muchunku, Chairman
Climate Innovation Centre, KenyaEdward Mungai, CEO
Investors in Renewable Energy CompaniesMarius Chirila, CDC
Frida Pettersson, Persistent Energy Partners, Tanzania
REACT CompaniesRepresentatives, agents, dealers and customers of the following companies:
M-Kopa, Off-Grid Electric, Nuru Lighting, EGG Energy, Biossal, Global Supply Solutions, Husk Power Systems, SimGas, EA Power, Kiwia and Laustsen, Planet Guarantee, Cummins Cogeneration, Suntransfer.
DocumentsNathan Associates, MDY Legal and Social Finance. Legal, Governance and Financial Due Diligence Study of the Africa Enterprise Challenge Fund. June 26th 2013.AECF. Renewable Energy and Adaptation to Climate Change Technologies (REACT). Portfolio Overview Report 2012.
Ministry of Foreign Affairs of Denmark (Danida). Kenya Business Sector Programme Support, Phase II. Review Report. May 2013.
DFID Internal Audit Report for REACT 2012.
AECF Annual Review Sept 2013.
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Climate Innovation Centre (CIC). Client Applications and Admission 2012/13.
ICF KPI Summary.
REACT Annual Report 2012/13.
REACT Annual Review 2012.
REACT PIP Progress. 19 July 2013.
REACT Project Memorandum. 2010.
Sustainable Energy Markets in Tanzania. Reports I and II. 2012.
Big Results Now. Energy Lab. Presentation 5 April 2013.
IED. Framework Programme for Energy and Power Sectors in Tanzania. August 2013.
