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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

April 2014

In association with:

Cookstoves in Uganda

Results-Based Financing for Clean

Final Report: Results-Based Financing for Clean Cookstoves in Uganda

Acknowledgements

This report was prepared by IMC Worldwide for the Africa Clean Cooking Energy Solutions (ACCES)

initiative of the World Bank. The authors would like to extend their thanks to all those who helped contribute. In particular, we would like to thank the government authorities and private sector organisations involved in promoting improved biomass cookstoves in Uganda for sharing their perspectives and information with the team. Special thanks go to the Uganda National Alliance on Clean Cooking (UNACC) for coordinating, hosting and participating in the stakeholder workshop as well as to those individuals who were available for interviews. Thanks also to the World Bank team, Srilata Kammila, Jan Kappen, and Besnik Hyseni, for their guidance and support and to those readers who took time to comment on our draft report.

In addition, the financial and technical support by the Global Partnership on Output Based Aid (GPOBA) and Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged.

GPOBA is a partnership of donors working together to support OBA approaches. GPOBA was established in 2003 by the United Kingdom’s Department for International Development(DFID) as a multi-donor trust fund administered by the World Bank. Since 2003, four additional donors have joined the partnership: the International Finance Corporation (IFC), the Dutch Directorate General for International Cooperation (DGIS), the Australian Department for Foreign Affairs and Trade (DFAT), the Swedish International Development Agency (Sida).

ESMAP – a global knowledge and technical assistance program administered by the World Bank – assists low‐ and middle‐income countries with increasing their know‐how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, the United Kingdom, and the World Bank Group.

IMC 10206 i Final Report: Results-Based Financing for Clean Cookstoves in Uganda © 2014 The International Bank for Reconstruction and Development / The World Bank Energy Sector Management Assistance Program esmap@worldbank.org 1818 H Street NW, MSN U11-1102 Washington DC 20433 Telephone: 202-458-7955 Fax: 202-522-2654 Website: http:// www.worldbank.org All rights reserved The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Energy Sector Management Assistance Program (ESMAP) at the address stated above.

–  –  –

Contents Acknowledgements

Acronyms

Executive Summary

What is the context for the design of an RBF approach?

What is the policy objective?

Which options will best address the identified barriers?

How would results be defined?

What are the main considerations for RBF design and implementation?

1. Introduction

2. Innovation Ecosystems: the ICS sector in Uganda

2.1 Main Actors and Activities

2.2 Market Segmentation

2.2.1 Market Size

2.2.2 Cooking Behaviour

2.3 Geographic Penetration of Current Cookstove Programs

2.4 Existing Business Models

2.4.1 The Artisanal Business Model

2.4.2 The Manufactured Business Model

2.4.3 The Modern Fuels Business Model

2.5 Summary of the Innovation Ecosystem

2.6 The Enabling Environment

2.6.1 Policies and Regulations

2.6.2 Financial Markets

2.6.3 Socio-political factors

3. Results-Based Financing

3.1 Policy Objectives

3.2 The Constraints on Market Development

3.3 RBF Options and Scoring Criteria

3.3.1 Candidate RBF Options

3.3.2 Filtering the Options

3.3.3 Assessing the Options

3.4 Shortlist of RBF Options

3.4.1 Summary of Options

4. Design Considerations and Implementing Modalities

4.1 Design Considerations

4.2 Market Response and Complementary Measures

4.3 Estimate of Value for Money





4.4 Monitoring and Evaluation Considerations

4.5 Implementing Modalities

4.5.1 Principals and their Competencies

4.5.2 Agents and their Competencies

–  –  –

5. Conclusions

5.1 The ICS Innovation Ecosystem in Uganda

5.2 The Way Forward: RBF for Improved Cookstoves in Uganda

5.3 Implementation

Annex 1: The Market Size for Improved Cookstoves

Annex 2: Ongoing and Planned Initiatives in the Cookstove Sector in Uganda

Annex 3: Main Stakeholders in the ICS Sector

Annex 4: The Potential for Innovation Prizes to Stimulate the Cookstove Sector in Uganda

References and Bibliography

Figures Figure 1: Shortlisted RBF options: supplier versus consumer focus

Figure 2: Scaling up the ICS market

Figure 3: Market segments for Sub-Saharan Africa

Figure 4: Population per market segment, East Africa

Figure 5: Rural households’ willingness to pay for clean cookstoves

Figure 6: From Blueprint to Scale: The four stages of market development

Figure 7: Artisanal Business Model

Figure 8: The Manufactured Business Model

Figure 9: Degrees of mechanisation

Figure 10: The market for modern fuels stoves

Figure 11: Getting the ICS market to scale

Figure 12: Consumer willingness to pay

Figure 13: RBF options focusing on suppliers

Figure 14. RBF options targettting consumers

Figure 15: Shortlisted RBF options: supplier versus consumer focus

Figure 16: Screening results against Filter 2 criteria showing red/amber/green scoring

Figure 17: Scaling up the ICS market

Figure 18: Theory of Change links outputs to outcomes and finally to impacts

Figure 19: Outputs differ across shortlisted RBF options

Figure 20: Shortlisted RBF options: supplier versus consumer focus

–  –  –

Tables Table 1: Market constraints across three business models

Table 2: Estimated market size by stove fuel type

Table 3: Household cooking characteristics in Uganda

Table 4: Artisanal stoves

Table 5: SWOT analysis of the Artisanal ICS Business Model

Table 6: Example models and manufacturers

Table 7: SWOT analysis of the Manufactured Business Model

Table 8: Biogas and LPG stoves

Table 9: SWOT analysis of the market for modern-fuel stoves

Table 10: Summary of market constraints

Table 11: Initial assessment of RBF1 against the key criteria

Table 12: Initial assessment of RBF2 against the key criteria

Table 13: Initial assessment of RBF3 against the key criteria

Table 14: Initial assessment of RBF6 against the key criteria

Table 15: Initial assessment of RBF 7 b) against the key criteria

Table 16: Initial assessment of RBF 8 b) against the key criteria

Table 17: Design considerations for the shortlisted RBF options

Table 18: Impact of RBF 1 and 2 on market barriers, and complementary measures required

Table 19: Impact of RBF 6 on market barriers, and complementary measures required

Table 20: Impact of RBF 7 b) on market barriers, and complementary measures required

Table 21: RBF costs, benefits and value for money

Table 22: Indicators, triggers and monitoring tasks are matched to the outputs of each RBF

Table 23: Indicators in use by international agencies

Table 24: Donor competencies

Table 25: Summary of market constraints across three business model types

Boxes Box 1: Can Uganda scale up ICS production?

Box 2: Living Goods: The aggregator model of distribution

Box 3: Establishing suitable ICS Quality Standards

Box 4: The interaction between RBF incentives and carbon markets

Box 5: Marie Stopes HealthyLife and HealthyBaby Voucher Schemes in Uganda

Box 6: Design option for RBF 6: a prize draw

Box 7: Mitigating against “trading down”

Box 8: The Energy for Rural Transformation program for Solar Home Systems and ICTs

–  –  –

Acronyms ACCES Africa Clean Cooking Energy Solutions (World Bank supported program) AFTEG Africa Energy Unit (World Bank) BoP base of the pyramid BEETA Biomass Energy Efficiency Technologies Association BLEN biogas, LPG, electricity and natural gas BRAC (formerly) Bangladesh Rural Advancement Committee CBA cost-benefit analysis CDM Clean Development Mechanism CER Certified Emission Reduction (unit) CREEC Centre for Research in Energy and Energy Conservation DALY disability-adjusted life years EKN Embassy of the Kingdom of the Netherlands ENDEV Energizing Development Program ERT Energy for Rural Transformation ESMAP Energy Sector Management Assistance Program GACC Global Alliance for Clean Cookstoves GDP gross domestic product GHG greenhouse gas GiZ Gesellschaft für Internationale Zusammenarbeit HAP household air pollution ICS improved biomass cookstove ISO International Organization for Standardization IPCC Intergovernmental Panel on Climate Change IWA International Workshop Agreement LPG liquefied petroleum gas MEMD Ministry of Energy and Mineral Development, Uganda NGO nongovernmental organization PREEEP Promotion of Renewable Energy and Energy Efficiency Programme (GIZ) PSFU Private Sector Foundation Uganda RBF results-based financing REA Rural Electrification Agency SACCO savings and credit cooperative SE4ALL UN Sustainable Energy for All UNACC Uganda National Alliance on Clean Cooking UNFCCC UN Framework Convention on Climate Change USh Ugandan shilling VER Verified Emission Reduction (unit) WB World Bank WHO World Health Organization IMC 10206 iv Final Report: Results-Based Financing for Clean Cookstoves in Uganda Executive Summary The fundamental idea behind results-based financing (RBF) is that payments to a service provider are made contingent on the delivery of a pre-agreed result, with achievement of the result being subject to independent verification.

An RBF approach is feasible as part of a broad package of measures to scale up the efficient and clean cooking sector in Uganda – the larger goal being to achieve a range of benefits, including health, in coordination with the government and key stakeholders. Results-based incentives should be combined with robust monitoring and verification arrangements, institutional strengthening, and awareness-raising campaigns to support progress in the sector over time.

What is the context for the design of an RBF approach?

There is an emerging market for improved cookstoves (ICS) in Uganda featuring multiple producers, distributors and technology solutions. We estimate that the combined market size for wood and charcoal ICS in Uganda is about 1.2 million units per year. This compares with current annual ICS production (including imports) of around 0.24 million units. These estimates are based on forecast population data,1 national survey data and interviews with the main producers of ICS products that are aiming to serve the Uganda market.

The supply of ICS is dominated by one national supplier, Ugastoves, which is currently responsible for around 50 per cent of all sales. Like most of the other larger suppliers, Ugastoves benefits from carbon finance revenues that act as a subsidy for ICS products in the range of 20–40 per cent of the full cost price. They also focus mainly on manufactured ICS products for the charcoal sector, where there is relatively good access to urban and peri-urban markets and where consumers face high fuel costs. They use a mix of approaches for sales and distribution, including “aggregators” such as farmer cooperatives or health service agents. There are some indications that these aggregators will be crucial in the emergence of a larger-scale market over time, particularly when targeting new markets.

Although the sector is expanding thanks to carbon finance incentives, important barriers remain.

These barriers in particular impede higher-performance products and fuels that could achieve significant health benefits in future through reduced pollutant emissions. Through close consultation with active market participants in Uganda and internationally, this report identifies the main barriers; Table 1 provides a breakdown by business model.

What is the policy objective?

The policy objective is to stimulate the uptake of efficient and clean cooking solutions that deliver a range of benefits, including health, with an emphasis on facilitating the emergence of a commercial market at scale.2 Dataset from World Bank (2013b).

A commercial market at scale is defined as a market in which (a) multiple actors serve multiple consumer segments and (b) consumers purchase ICS without intervention.

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