Clean Energy Revolving Fund Handbook

Nexus for Development (Nexus) launched the Clean Energy Revolving Fund (CERF) as a climate change mitigation project; it commenced in 2016 and was scoped to end after a three-year period.

The innovative finance model began with an initial investment from the Renewable Energy and Energy Efficiency Partnership (REEEP) with support from the Austrian Government and the Blue Moon Fund (BMF). By providing affordable finance, the CERF catalyzed the adoption of clean energy technologies by Small and Medium Agri-businesses (SMAs) and farmers in Cambodia, which in turn reduced CO2 emissions, encouraged an early shift away from fossil fuel-based energy, and increased food processing productivity.

The absence of flexible finance instruments for RE technology investments coupled with low levels of end-user knowledge and trust in RE caused low-adoption rates across the country for decades. CERF’s financing conditions are truly innovative in the Cambodian context, as financial institutions currently only provide SMAs and farmers with expensive and fully collateralized loans (usually with land titles serving as the preferred form of collateral). CERF provided SMAs and farmers with unique and flexible financial terms (whereby both loan tenors and repayment schedules were structured to fit agricultural cycles), accompanied by technical assistance and capacity building. The RE technology was used as collateral, and low financing fees were charged. This dynamic mechanism allowed the fund to learn, adapt, and respond quickly to agricultural market realities, and the results exemplify these successes. CERF borrowers or farmers reported that they would not have made the RE investments without CERF, while technology providers, who had previously struggled to match their offer with a financial product, highlighted CERF’s role as trust brokers with their target clients. When given access to renewable and affordable energy technologies, CERF SMAs and farmers significantly reduced on farm and agricultural processing costs and improved the resiliency of their businesses. CERF enabled SMAs and farmers to capitalize on energy cost savings by reinvesting this as funding to scale their businesses. As the payback period of RE investments for SMAs and farmers was typically realized within three to five years, businesses could expect to see further growth in the medium and long-term.

Over the three-year project life, 15 loans were approved by the CERF Investment Committee (IC), and to-date the fund has received repayments of principal and interest for the majority of the loan portfolio. Only one loan has defaulted, and Nexus was able to recover part of the initial capital lent. The clean energy investments made mainly were in solar water pumps and on-grid solar systems for SMAs growing fruit, vegetable and pepper, and livestock farms such as pig farms. The loan portfolio also included one community based water treatment plant. The loan sizes varied from 7,000 to over 50,000 USD, with most investments falling within the range of 10,000 to 15,000 USD. CERF loans funded up to 90% of the technology cost, with the remainder co-financed by the investees. The total portfolio of clean energy investments is 331,204 USD, of which 261,014 USD was funded by CERF capital.

CERF investments have enabled the installation of 85.76 kW of solar energy and produced 115,264 kWh of clean energy, which is equivalent to a reduction of 168 tonnes of CO2e pollution each year. It is estimated that there are more than 7,000 SMAs and larger farmers in the pepper, pig, and longan sub-sectors alone. Each CERF project contributed about 10 tonnes of avoided CO2e emission per year. If Nexus were to finance 7,000 SMAs to adopt RE technologies, we would be able to reduce about 70,000 tonnes of CO2e emission per year.

The overall goal of this handbook is to share our learnings from managing CERF. The handbook seeks to provide background on the history of the design and set-up of CERF, CERF due diligence processes, lessons learnt, case studies, and to objectively review the challenges that were met in managing CERF. The handbook also aims to demonstrate the practicalities of financing RE investments and to build the case for why local FIs should consider this market. It offers suggestions for necessary steps or processes that should be considered when designing RE financing structures. Our desired outcome is that the handbook supports the development of the ecosystem of financiers and provides insights for FIs to gain a greater understanding of RE market opportunities and products needed for effective lending in the agri-food sector to farmers and SMAs in Cambodia. Nexus is not suggesting that FIs solely adopt the CERF model; in fact to the contrary, Nexus hopes that FIs will modify the financial model to determine what works best for them whilst still supporting the broad adoption of renewable energy.

This pilot fund was made possible by the generous contribution of our donors: