gef/undp/doe cbred project

GEF/UNDP/DOE CBRED PROJECT“Philippines: Capacity Building to Remove Barriers to

Renewable Energy Development”

Presentation by :

MSC Business Planning & Development Subcontract

Presentation to REIACSeptember 22, 2005

Outline of Presentation

MSC Business Planning and Development

I. Background/Rationale of MSCII. Environment Scan and Market AssessmentIII. The Establishment and Operationalization of

the Market Service Center (MSC) 1.Vision and Mission2.Service Offerings3.Strategies4.Organizational Plan5.Marketing Plan6.Financial Plan7.Operational Plan

I. Introduction – Background/Rationale

Lack of system in government permitting process

Complex project development process

Some Barriers the MSC Aims to Address

How the MSC concept started –

A “One-stop shop” for expediting the processing of applications, permits and approvals required to carryout RE projects; and

Provide assistance in RE project development

II. Environment Scan/SWOT Analysis & Market Assessment

Objectives :

• the Environment Scan aims to guide the MSC in positioning itself in the RE sector as a provider of quality services that will facilitate private sector participation and investments in RE projects.

• the Market Assessment provides an understanding of the specific service requirements of the target markets, facilitates the prioritization of such services and allows for the internal assessment of capabilities of the MSC.

II. Environment Scan/SWOT Analysis & Market Assessment (cont’d)

Environment Scan (SWOT Analysis):

Strengths:

1. CBRED Project can provide initial resources to the MSC

2. DOE can provide office space3. Link with DOE can facilitate access to foreign funding4. MSC is molded by DOE, RE industry and stakeholders5. Large corporations that can pursue large projects

exist in the RE industry


Weaknesses:1. Potential market in off-grid areas are generally the poor

sector of society with low capacity to pay and where need for electricity may not be a priority;

2. RE market is spread too thinly making it difficult and costly to promote, market and provide after-sales services to;

3. Through the years, RE industry has shrunk in size, thereby decreasing the potential market for MSC services;

4. A number of RE project developers have lost interest in tapping local financing due to stringent loan terms and conditions.




Opportunities:

1. Isolated grids open a window for RE systems to become viable;2. The UC under the ME provides financial support to encourage

RE project developers to participate in ME program;3. The transformation of some ECs to stock corporation paves the

way for the participation of RE project developers to acquire portions of the distribution business;

4. The uninstalled hydro equipment of the NEA can be used by RE project developers;

5. RE projects are qualified for carbon credits under the CDM of the Kyoto Protocol;



Opportunities:

6. High foreign exchange rate may favor local manufacture of RE systems and components;

7. More than ever, the extremely high cost of conventional fuel has made RE highly competitive;

8. MFIs operating in unelectrified communities have existing network that can be tapped in promoting and marketing of RE products;



Opportunities:

9. The ANECs may be tapped as a network to promote, market and service RE systems in their areas of coverage;

10. Rural electrification and provision of potable water supply are

priority programs of the present administration;

11. The expected passage of the RE Bill will greatly boost the RE

industry.



Threats:

1. The MSC may be viewed as a competitor by the private sector;

2. The sustainability of MSC’s operation after the life of the CBRED project is a concern;

3. The current size of the RE industry is small to support the operation of a self-supporting MSC;

4. The occurrence of infringement of intellectual property rights has negated the gains of previous efforts to encourage RE equipment manufacturers to commercialize;

5. The Clean Air Act is viewed as a barrier by biomass-based system fabricators.


Market Assessment: Services needed by RE industry :

1. Project Development

1.1 Facilitation in securing permits, licenses and approvals. 1.2 Access to information for project design1.3 Proposal Packaging for loan application

1.4 Loan Sourcing/Fund Syndication 2. Advisory Services on Business Systems and Process

Improvements

3. Assistance in Promotion and Marketing of RE Products

lll. The Establishment of the MSC

Vision Statement

We are the “One-Stop Shop” in the development of a vibrant and competitive renewable energy industry in the country

and in the ASEAN region.

Mission Statement

“We are the institutional catalyst that is responsive to the needs of

renewable energy stakeholders in the development and widespread application of renewable energy in a sustainable manner.

We value our employees and stakeholders as partners in making renewable energy a practical and reliable energy source”.

2. Service Offerings

1. Advisory Services for RE Equipment Mfrs & Service Providers - Advisory Services - Training

2. Info services - Info provision/processing - Access to Private Databases

3. Marketing & Promotions Services - Web hosting - Facilitation of networking

4. Project Development Services - Facilitation of Securing Permits, Licenses & Approvals - Loan Proposal Packaging - Facilitation of Loan Application - Brokering of Rehabilitation of NEA Hydro Projects - Fund Syndication-related services - Conduct of FS (w/private sector partners)

3. Goals and Strategies in the Establishment of the MSC

3.1 Phases of the MSC

The establishment of the MSC shall evolve in 3 phases:

Phase 1 : Interim MSC (Q4 2004 – Q2 2005) Phase 2 : Simulation of Operation of the Spin-Off Organization (Q3 2005-Q2 2007) Phase 3: Establishment and Operationalization of

the Spin-Off Organization (Q3 2007 – onwards)


3.1 Goals of the MSC

Phase 1: Creation of the IMSC

- Full complement of personnel hired - Capacity building of staff started - Business relationships with potential customers, subcontractors, fund sources and other RE stakeholders started



Phase 2: Simulation of Operation of the Spin-Off Organization

- Starts providing services to the RE industry to simulate the operation of the SOO - Capacity building of staff continues - Business relationships with potential

customers, subcontractors, fund sources and other RE stakeholders sustained - Management system defined



Phase 3: Establishment and Operationalization of the

Spin-Off Organization

- MSC – SOO registered - Continues to provide services - Starts accumulating revenue - Business relationships with potential

customers, subcontractors, fund sources and other RE stakeholders sustained - Sustainability of operation achieved


3.2 Strategies of the MSC

Phase 1: Interim MSC

- Use the approved plantilla of the CBRED Project to

hire personnel

MSC Interim Organization

Coordination/ Consultationon turned- over systems

Project Steering Committee (PSC)

(DOE, UNDP, DENR, etc)

MSC CoordinatorEIPO

REIAC

Technical Support Specialist

Information and Promotions Technical Specialist

Policy and Institutional Technical Specialist

AdministrativeCoordination

CBRED - PMO

Turnover of Systems developed by CBRED

Subcomponents

CBRED-PMO( supervision of

activities funded fromCBRED Funds)

Boundary of the Interim Organization of the MSC

SubcommitteeFor Component 2

Review/Consultation

Administrative Assistant

Review/Consultation



Phase 1: Interim MSC

- Use the approved plantilla of the CBRED Project to

hire personnel - Start capacity building of IMSC personnel on

the services it shall offer and on the

Management System of the SOO

PHASE 1 : Establishment of the Interim MSC (IMSC)

Attributes of IMSC: 1. no legal personality; a group within CBRED 2. staffed with personnel provided under CBRED 3. housed at the DOE 4. operates on funds allocated by CBRED for MSC Intentions of Establishing the IMSC: 1. serve as vehicle to receive incoming personnel 2. personnel familiarization with and integration into the

RE industry 3. start personnel capacity building on MSC operation & management

4. Organizational Plan -Phases of MSC Establishment and Operationalization



Phase 2: Simulation of Operation of SOO

- Simulate the provision of services ‘at cost’ - Agreements for services shall be between the

DOE and the client since the MSC has no legal personality to transact business - Turnover systems created under the CBRED

project subcomponents to the MSC, and provide

access to corresponding budgets - Undertake preparatory activities for the establishment of the SOO



Phase 3: Establishment and Operation of the SOO

- Formalize the creation of the SOO - Tap the CBRED project resources to support

the operation of the SOO - Assign the administration of the PPF, LGF and

MFF to the SOO - Undertake project-based services/activities - Sustain customer relationship - Undertake continuous search for projects and

funds - Forge partnership with subcontractors

Total CapabilityRequired by the

MSCF.

Core CapabilityOf the MSCF

(Project Integrator/Consolidator)

Sub-contractorCapability

A


B


C


D

Boundary ofMSCF organization

Total capability required by the MSCF

In relation to its capability

Boundary ofSub-contractorManagement

• Long-term sustainability• No-governmental entity• Assistance to RE sector• Non-competition with private sector• Close-links with RE-related gov’t agencies• Close ties with clients and stakeholders

4. Organizational Plan – Imperatives

• Service lines under one roof

• Economy & flexibility in structure

• Access to external technical expertise/facilities

• Links with domestic/international fund sources

• High level of staff competence

• Ability to access external funds to help support

its operation

4. Organizational Plan – Imperatives (cont’d)

4. Organizational Plan - Options

1. Government Corporation with Charter

2. Government Corporation under the Corporation Code

3. Private Corporation - Stock Corporation

4. Private Corporation - Non-Stock Corporation

5. Private Corporation-Non-Profit, Non-Stock

4.1 Association 4.2 NGO 4.3 Foundation

4. Organizational Plan – Comparative Matrix

4. Organizational Plan – Conclusion/Recommendation

Conclusion of Organization Study

A Foundation is the most appropriate type of organization for MSC mainly for following reasons :

Not viewed as a competitor of the RE Industry

Can accept fund donations and projects from national, bilateral and multilateral donors/sources to help support its operation

Donors can deduct 100% of their donations/contributions from their taxable income

Attributes of the MSC Foundation1. has legal personality to transact business

2. housed at DOE until proven financially capable of

maintaining its own office 3. operates on MSC funds provided under CBRED

and revenues from services provided to the RE

industry

Intentions of the MSC Foundation1. absorb qualified IMSC staff

2. provide services to RE industry for a fee 3. continue capacity building of staff 4. pursue market development activities

4. Organizational Plan -Phases of MSC Establishment and Operationalization

MSCF Table of Organization

Board of Trustees

Executive Director

ManagerKnowledge Mgt

Finance & Administration

ManagerBusiness Dev’t

One Person

One PersonTwo Persons

One Person

One Person

ManagerOperations

Project Manager

Project Support Staff

Project Subcontractors

Total CapabilityRequired by the

MSCF.

Core CapabilityOf the MSCF

(Project Integrator/Consolidator)


A


B


C


D

Boundary ofMSCF organization

Total capability required by the MSCF

In relation to its capability

Boundary ofSub-contractorManagement

INTERACTION WITH STAKEHOLDERS

ServicesThat can be

SubcontractedTo MSCF

DOE

InvestmentPromotions

MARKET SERVICE CENTER

DOE Registration Program

Potential Projects / Project Developers

Project Development

Services

Weak areas in Processes, Products,

Business Systems

Advisory Services

Information

RE Industry

Information

Marketing /PromotionsServices

Financial Institutions

Donations

Potential Projects

RE Industry

InformationServices

1. RE Project Developers

2. RE Engineering service providers

- fabricators - service providers 3. RE Manufacturers - manufacturers - suppliers - integrators

5. Marketing Plan- Major Target Markets

Prioritization based on the following considerations:

- MSC currently capable to provide the service

(3 pts) - MSC needs minimal training to provide

service (2 pts) - MSC requires intensive training to be able

to provide the service (1 pt)

5. Marketing Plan – Product Mix

MSC Priority Services Offerings

5. Marketing Plan – Product Mix

Services of the MSC Weight Rating

Weight Rating

Prioritization

1. Facilitation of Securing Permits/ Licenses/ Approvals

0.18 3 0.54 5

2. Loan Proposal Packaging and Facilitation of Loan Application

0.82 3 2.46 1

3. Fund Syndication-related services

0.27 3 0.81 4

4. Business Systems Process Improvement

0.45 2 0.90 3

5. Marketing and Promotions Services

0.55 3 1.652

6. Information Services 0.18 2 0.36 6

• Caters to a niche market

• Provides services in

partnership with consulting

firms/individuals

• Provides full range of services

5. Marketing Plan – Competition

5. Marketing Plan – Pricing

• Cost-plus pricing (actual direct cost plus admin cost)

5. Strategies in Building the Market for MSC Services

1. Organize and conduct business fora to marry potential projects with investors, in coordination with REMD and EIPO;

2. Meet and discuss with major RE industry players on MSC can help them now, follow through and maintain customer;

3. Offer reasonable fees for services;

4. Use the Register of RE equipment manufacturers and service providers in selecting partners for providing services to the RE industry;

5. Pursue membership in RE industry organizations for exposure;

6. Prioritize services with outputs in the short term to start build a name in the industry;

7. Get support from CBRED Project for creating awareness and promotions of MSC.

5. Strategies in Building the Market for MSC Services (cont’d)

• Media Advertising – newspapers, magazines, radio, tv

• Web-based advertising (homepage, government, industry web sites)

• Brochures• Exhibitions in fora, conferences• Meetings with potential clients

5. Marketing Plan – Marketing Strategies

6. Financial Plan – Financial Projectionsfor MSCF Operation

Assumptions:

1. Pre-operating expenses- (SEC reg’n. business permits, etc.)

2. Additional capital expenses- (office & equipment)

3. O & M- (Existing IMSC O&M plus retainer fees, honoraria, office rental, etc.)

6. Financial Plan – Financial Projections

ii. MSCF Operation

Scenarios:

1. Base case – Targeted no. of clients based on PRODOC

(at least 2 RE projects packaged; at least 50 clients served; at least 50% of OPEX financed by its income)

2. Pessimistic – 50% less clients than the base case

3. Optimistic – 50% more clients than the base case

4. Break- even – 100% financially sustainable

6. Financial Plan – Financial Projectionsfor MSCF Operation

Results:

Fixed Cost : P 3.9 to 8.5 Million in the 14 years of operation or 97 to 63 % of total operating cost.

Variable Cost: P 0.1 to 5.1 million in the 14 years of operation or 3 to 37% of total operating cost of P 4.0 to 13.6 million.

Revenue: Ranges from a low of Php 0.8 to a high of

Php 15.3 million.

6. Financial Plan – Financial Projections

ii. MSCF Operation

Summary of Scenarios:

1. Base case – 16.7 million deficit* 2. Pessimistic – 47.8 million deficit*3. Optimistic – 11.4 million surplus

4. To Break-even – There should be 31% increase on the yearly frequency of services targeted in base case

*Equal to required capital fund infusion at the start of the operation

Strategy 1: Optimize CBRED project support for its operation & endeavor to increase frequency/number of clients served

Strategy 2: Access interest earnings of the PPF, LGF and MFF to help finance its operating cost

Strategy 3: Carryout systematic solicitation of new funds or projects from multilateral and bilateral sources e.g. UNDP, USAID, ADB, World Bank, JICA

7. Financial Plan – Strategies

Transitory Provisions

1. Phasing-in Strategy – IMSC simulates the operation of the SOO by providing services to the RE industry

2. Asset Transfer – All equipment purchased for the MSC shall be transferred to the Foundation through a Deed of Donation from UNDP.

3. Personnel Transfer – Services of IMSC staff shall be terminated at the end of operation of IMSC. They will however be given priority in hiring personnel for the MSCF, if they qualify. Years of service with the IMSC shall not be transferred to the Foundation.

7. Operational Plan – Contingency Plan

If the MSCF is not sustainable at current level of operation, the following are fallback options:

1. Continue to operate as a Foundation with scaled-down operation aimed at sustainability

2. Dissolve the Foundation – Transfer all MSCF assets to the DOE and DOE continues the functions of the MSCF

Cost Benefit Analysis

Renewable Energy Policy Framework Target= 10 MMBFOE= 4,697 MW

Assuming MSC provides services to 10% of the projects:Total MW = 469 MWMMBFOE = 1 MMBFOEForex Savings= 50 million USD or equivalent to

2.75 Billion Pesos

Potential MT CO2 emissions avoided = 310,440

At 7 USD per MT CO2 = 2.2 USD million

Empowering people, Improving livesEmail: [email protected]

gef/undp/doe cbred project

Documents

potential market

priorityre market

msc concept

project developmentii

project developersre

msc servicesa number

large projects

private sector participation