What is SECF?
SECF is a Viability gap based Sustainable Energy Challenge Fund mechanism which has recently been established within Central Renewable Energy Fund (CREF) of Alternative Energy Promotion Centre (AEPC) with the support from British Embassy Kathmandu funded Nepal Renewable Energy Programme (NREP). To facilitate this mechanism, detail guideline has been developed. This guideline is intended to explain context of challenge fund mechanism and its best practices, details of the process and steps to be followed while managing SECF, which is also highlighted in CREF Operation Manual recently amended by Ministry of Energy Water Resources and Irrigation (MoEWRI) of Government of Nepal (GoN). Additionally, the challenge fund windows of SECF explained in this guideline will help establish linkage of proposed RE project with respective windows and its support mechanism.
Guiding Principles of SECF
SECF will operate under the guiding principles and practices illustrated in the following diagram which are also in line with CREF’s current guidelines for Vendor Finance Challenge Fund:
- Challenge funds encourage innovative approaches to address problems, barriers, challenges and support creative problem-solving. The solution might be totally novel or new to Nepal as well.
- Each project has challenge or competition to address specific development objectives for which innovative approaches may be proposed. The approaches are designed to attract adequate investment from private and public investors.
- Challenge fund encourage awardees having potential to reach scale with sustainable operations beyond the fund’s support.
- Each project shall have double bottom-line impact in terms of social impact & economic viability with successful implementation.
- Fund will provide viability gap funding to the projects for early implementation risk mitigation through cost sharing to make the marginally viable project to the viable project.
- RE sector has significant market potential to maximize energy access and energy security, despite its need the sector is highly subsidies which created a struggle to develop the market. Challenge fund addresses such missing market to correct market practices.
- The approach and interventions proposed in the proposal should focus on value for money and leverage resources from private or public sources. The progress of all approved projects will be measured based on milestones jointly prepared with the partner institution prior to signing of the Performance Based Agreement (PBA) with the selected awardees.
- Projects targeted towards Gender and Social Inclusion are given higher priority at application as well evaluation criteria to accelerate impact and bring equality in the society.
Funding Windows
| No. | SECF Windows | Types of Financial Support | Ceiling of financial support | Potential eligible projects |
|---|---|---|---|---|
| 1 | Project/s to be implemented with the investment of Provincial and/or Local Government/s in the Public Private Partnership model | Financial Support for Capital Investment | Up to 50% of the project cost or the financial support requested by the applicant -whichever is less competitive basis | All energy related projects developed in PPP model with the investment of Local and/or Provincial governments |
| 2 | Project/s to be implemented by aggregating demands of SE technologies and projects | Financial support for market development and promotion based on result | Not exceeding 10 million rupees, maximum of 50% of the market development and promotion cost or the financial support requested by the applicant-whichever is less | • Sustainable Energy projects prepared by Local or Provincial government in a public private partnership model • Renewable projects for households, • Renewable energy for irrigation • Productive use of energy for MSME promotion |
| 3 | Project proposed for the improvement of technical, financial and managerial aspects of the existing mini and micro hydro projects or other renewable energy mini and micro-grid projects | Financial Support for Capital Investment | Not exceeding 10 million Rupees, 50% of the total improvement cost or the financial support requested by the applicant -whichever is less | Technical, managerial and financial management of existing micro and mini hydro projects and other mini grid operated by renewable energy that have potential to improve energy access to vulnerable and remotely located households |
| 4 | Viability Gap Incentives to make marginally viable RE project viable: The captive project tied with the National grid where minimum of 51% of the annual energy produced is used for self-consumption – Interest Rate Buydown | Subsidy in the Bank’s Interest rate | Maximum of 50% of the total interest on their loan to be obtained for that project for maximum of 5 years or the interest buydown rate proposed by the applicant whichever is less. | • Solar PV net metering connected to grid, • Mini-grid system projects • Other renewable projects that contribute to energy mix |
| 5 | Viability Gap Incentives to make marginally viable RE project viable: The captive project tied with the National grid where minimum of 51% of the annual energy produced is used for self-consumption – Incentive based on energy generation | Incentive based on energy generation | Incentive based on energy generation units to be given in every 4 months – maximum of Rupees 1.50 per unit for maximum of 5 years or the Incentive based on energy generation proposed by the applicant whichever is less. | • Solar PV net metering connected to grid, • Mini-grid system projects • Other renewable projects that contribute to energy mix |
| 6 | Any other innovative sustainable energy projects that meet SECF objective and do not fit into the financial support conditions mentioned above | Justifiable Financial Incentives that are not part of above windows | Not exceeding 10 million Rupees – 50% of the total cost or the financial support requested by the applicant-whichever is less | • Sustainable Energy projects prepared by Local or Provincial Government in a public private partnership model to improve energy access to the households • Project proposed by other eligible institutions to improves energy access to households • Mini-grid system projects • Other renewable projects that contribute to energy mix |
| 7 | Project to improve energy access to the households through reverse auction based on amount per household | Financial incentives to the project based on number of households covered | Maximum of Rupees 10,000 per energy system or the financial support requested by the applicant-whichever is less | • Sustainable Energy projects prepared by Local or Provincial government in a public Private partnership model to improve energy access to the households • Project proposed by other eligible institutions to improve energy access to households |
| 8 | Loan Guarantee Mechanism with Limited Liability to ease Collateral Requirement | Loan loss Guarantee while obtaining loan from banks to ease collateral requirements | Maximum of 20% of the total RE portfolio of all loans recommended by SECF | This facility is available for all windows above |