Financing the clean cookstove revolution the green way

Financing the large-scale deployment of clean cookstoves

A Q&A with Evan Haigler of Impact Carbon

In late September 2010, several dozen men and women from around the world crammed into a small room at the United Nation’s Foundation’s headquarters in midtown New York to discuss how to deliver 100 million cookstoves by 2020 to the homes of the 3 billion people worldwide who lack access to clean safe energy.

The challenge had been laid down a few days earlier by Secretary of State Hillary Clinton when she announced the creation of the Global Alliance for Clean Cookstoves, a $50 million campaign to increase access to clean burning stoves for the world’s energy poor.

The men and women gathered in the room were experts in many fields: international development, clean cookstove manufacturing, carbon finance, public health, local businessmen, and impact investment. Some, like The Charcoal Project, were newcomers to the issue. Others, like Dean Still and Dr. Kirk Smith, had dedicated a lifetime to solving this problem.

Of all the expert meetings convened in the days following the announcement to discuss the strategies necessary to achieving the Alliance’s goal, none had greater attendance than the meeting to discuss how to finance the mission. That’s because of the myriad difficulties facing the Alliance, none is probably greater than securing the funding necessary to finance the initiative.

Held at the UN Foundation’s office’s in New York, the meeting was co-hosted by the Global Alliance for Clean Cookstoves and Impact Carbon, a San Francisco-based non-profit with a mission “to improve health and the environment through clean energy projects that reduce carbon emissions.” Impact Carbon aims to help defray the overall cost of the clean energy projects by monetizing the carbon offset opportunities of each venture.

We wanted to find out more about how carbon offsets could help finance clean energy projects, so when we ran into Impact Carbon’s Executive Director Evan Haigler at a conference in November, we cornered him in the hallway. Evan was kind and patient enough to answer our questions.

The Charcoal Project: Evan, what is Impact Carbon?

Evan Haigler: We are a non-profit, carbon project developer. Our focus is developing new improved cookstove projects that have the co-benefits of reducing indoor air pollution and alleviating poverty. We also look at new financing opportunities to help existing projects get to scale and are interested in other project types such as water treatment and solar lighting.

TCP: So, is carbon finance going to bankroll the deployment of the 100 million cookstoves?

EH: I think it will play a very important role in financing the scale-up of new projects. In some situations the value of the carbon offsets from a stove can be greater than the cost of the stove, so an entrepreneur is now selling an environmental service first and a household appliance second.

But while carbon finance can offer tremendous economic benefits to stove projects,  it’s a long, hard, and expensive slog to get projects approved. It can take 2 to 3 years before the project will see any income being generated.

And, to date, carbon offsets from biomass energy represent only about 6 percent of the global carbon market.

TCP: Let’s suppose I’m an entrepreneur or a cookstove program somewhere. What can you do for me?

EH: We bring in financing and develop the carbon asset that allows you to start generating carbon credits. We also share resources and information to help you understand how these things work.

For a small stove entrepreneur on the ground, we become a partner investor. We conduct a due diligence process first, of course. Basically we model the financial viability of a project opportunity based on the answers to these questions: How many stoves can the partner sell and distribute? What’s the market potential and how much are people willing to pay for the stove? What does a stove cost? How much fuel does the stove save? How long does the stove last? How renewable is the fuel and what is its source.

We generate carbon credits based on how much fuel is saved by each stove, how many stoves are sold, and how long they are used.  Fuel renewability is an important factor as well, and hence we look for projects in areas where deforestation is a big problem.

These are the things that we want entrepreneurs to be thinking about.

TCP: How does the business side of the enterprise come into play?
EH: This is a big part of our due diligence process. We ask, for example, can you get to scale in this market? What track record do you (the entrepreneur) have as a businessman or businesswoman? Do you have distribution experience? How can carbon help? Are you in a situation where the stove is too expensive? Or do you need to open a new factory?

TCP: What type of partners are you looking for?

EH: In the past, it’s been about identifying manufacturers. Now the entrepreneur we’re looking for is going to be more about distribution and the ability to sell stoves, rather than making them. We can source stoves from other factories nearby or import stoves from somewhere else. The point I’m making is that we’re looking for people who have access to communities and can distribute and sell stoves that customers want and will use. For example, someone who has experience and past success selling toothbrushes in rural areas could be of great interest to us.

TCP: Let’s get back to cookstoves. Are there any particular types of stove projects you’re looking to support?

EH: We’re focused on projects that have the potential to grow and scale over time and will have health and social cobenefits. Primarily we are targeting areas where deforestation is a big problem. At this time we are only considering projects that can deploy a 5,000 stoves per year at a minimum.

We’re also looking at other technologies that we can fund, like water purification and treatment, and solar lighting.

TCP: Where is Impact Carbon operating these days?

EH: We are working throughout sub-Saharan Africa and in Asia and Latin America.  Our flagship projects are in Uganda and China, but we are also working on new projects with partners in Kenya, Guatemala, Haiti, India, Indonesia, Sudan and elsewhere.

TCP: What about improved charcoal-making and co-generation?

EH: We’ve looked into that. There’s obviously a lot to be gained by making charcoal production more efficient considering the low conversion rates. We’ve looked at pellets and briquettes quite a bit as well. The trouble is that we haven’t yet found an attractive economic model based on carbon financing that is as cost-effective as those offered by clean cookstoves.

TCP: And why’s that, you think?

EH: Take an improved “jiko” charcoal stove that sells for U$10. It will save about 1/3 of someone’s fuel consumption over a 3-year period. It’s possible to measure all that carbon saved against this $10 product. With a briquette it’s different. The amount of carbon you save per briquette is relatively small compared to the cost.

For example, if we subsidize every briquette, maybe we can shave 5 cents off per briquette. That’s probably not enough to justify the investment. The numbers are just not there yet. Also, my understanding is that briquettes are not yet cost competitive with charcoal.

TCP: Given your current cookstove projects are financially viable, what are the barriers to scaling? Why is it that there are significant opportunities but relatively little money flowing?

EH: There are several reasons why things haven’t taken off yet.

I think the biggest reason is that traditional and institutional investors have trouble understanding the risks associated with these projects and also have trouble seeing a clear pathway to scale.  Thus investors have shied away from investing in these types of projects and there hasn’t been an influx of capital into this sector, which has in turn hampered its growth.

There are a lot of other carbon offset projects that are simpler to quantify and easier for investors to understand, such as wind farms and hydro projects.  That said, I think more investors are starting to realize that stove projects are a huge opportunity now that more projects are proving to be successful and lucrative.

TCP: Does the uncertainty around the future of the Kyoto Protocol (which governs the CDM market) have an impact on investment in clean cookstoves?

EH: Definitely, the uncertain future of carbon markets makes it difficult to secure investments for new projects.

But from my perspective, regardless of the future of the Kyoto Protocol, Climate Change is becoming a bigger problem, not a smaller problem and one way or another I think we are going to continue to value the fact that improved stoves reduce carbon.

However, compared to CO2 emissions from fossil fuel combustion, household biomass fuel represents only 3 or 4 percent of global CO2 emissions.  So if we want to make a big dent in CO2 reductions, we also need to reduce fossil fuel consumption, especially in developed and emerging countries.

Having said that, investing in clean cookstoves brings a host of additional benefits to society, like improved public health – especially for women and children, reduced pressure on local ecosystems, reduced “black carbon” (a powerful global warming pollutant) emissions, and, finally, economic benefits for the energy poor family who no longer has to send children out into the forest for hours each day to scavenge for wood fuels. This means the children can spend more time in school.

Some of the carbon credits from our cookstove project in Uganda were used to offset the Olympics in Vancouver. The fact that the cookstove project delivered many benefits to the community along with reducing carbon was an attractive selling point.