Business and Financing Models
A project implementer who is considering engaging in an improved cookstove project needs to consider the appropriate business models to support the design, manufacture, distribution, sales, marketing and maintenance of cookstoves, and potentially fuels as well. There are many different business models for clean cooking carbon projects, in order to determine which is right for your project, the following questions need to be answered:
What are the technology and design choices? More specifically, what are the design priorities (cost, fuel efficiency, emission reduction, attractiveness and/or ease of use)? What is the basic technology type (natural, forced draft, gasification, simple combustion)? What is the fuel type (raw biomass, processed biomass, charcoal, ethanol, LPG, biogas)? What is the manufacturing strategy (imported, mass-produced locally, made by artisans)?
Who are the target customers? More specifically, what are the demographic characteristics of households (income, education, occupation, household size, gender)? What is the geographic or regional focus? What is the dwelling location and type (rural, urban, peri-urban)? What are the competing fuels and cooking methods (kerosene, open fire, traditional stoves)?
What is the marketing strategy? More specifically, what are the product selling points (cost effectiveness, faster cooking time, health concerns)? How will the product be advertised (TV, radio, magazines, Internet, word-of-mouth, billboards, live demonstrations)?
What is the channel strategy? More specifically, what are the means of building and incentivizing a distribution network? What are the maintenance and after-market support strategies? What are the means of sourcing fuels (if the stove uses processed fuel)?
What are the organizational characteristics? More specifically, what is the type of organization (branch of a foreign/multinational company, indigenous company, NGO, government agency)? How many employees are there? How much experience does the management team have? What are the expected commercial and social returns? Are there other products sold by the organization, and, if so, does the organization have experience with products that are analogous to cookstoves?
For more information on business models, please see Cookstoves and markets: Experiences, successes and opportunities (GVEP, 2009), and Improved stoves in India: A study of sustainable business models (Shrimali et al., 2011).
Potential investments/funding models
A typical clean cookstove carbon project involves two main phases: the project implementation phase, where the project is registered under a carbon standard, and the operational phase, where carbon credits are continuously monitored, and then verified and sold. Different types of funding can support each step of the project. Typically, the following activities need funding:
- Project Implementation Phase: setting up an organization (for implementation/distribution/maintenance), office infrastructure, conducting feasibility studies, performing baseline surveys, providing training and capacity building, registering the project under a carbon standard, as well as procuring the clean cookstoves and distributing them. All these activities result in one-time costs, which typically need to be covered upfront.
- Project Operation Phase: covering operational expenditures like salaries, rent and other recurring costs, performing continuous monitoring and data collection, record-keeping, verifying the project in regular intervals, and maintaining the improved cookstoves. These activities result in recurring costs during the operation phase of a project.
In most cases, the project implementation relies on funds from investors or grants from development agencies (sometimes in the form of overseas development assistance (ODA)) to cover the initial costs of the project.
Carbon credits may be sold in advance (“sold forward”) or after they are issued by a carbon standard. If credits are sold after issuance, the revenue can only be used to cover operational costs, because the transaction happens during the project’s operational phase. If carbon credits are sold in advance, usually for a significant discount, pre-payments may be obtained to cover upfront investment during the implementation phase of the project.
The types of available funding models may also depend on the legal status and other characteristics of the project developer. In some cases, a private company may have more difficulty in accessing grants and ODA agencies.
Typical activities in a project cycle are listed below, along with potential sources of funding.
|Project cycle stage||Activity||Grant-based||Private investment|
|Implementation phase||Setting up organization, |
project feasibility studies,
|ODAs from grants agency||Project provides or acquires own funds|
|Implementation phase||Training and capacity building, |
registering the project under a carbon standard,
procuring clean cookstoves and distributing them
|ODAs from grants agency;|
|Private capital investment;
loans (concessional or market based);
public-private partnerships; prepayments from,
carbon credits sold ‘forward’
|Operational phase||Operational expenditures like salaries, |
rent and other recurring costs,
continuous monitoring and data collection,
verification and issuance of carbon credits,
servicing the improved cookstoves
Several organizations specifically support the development of improved cookstove projects with carbon finance. How easily financing can be accessed from these various organizations varies depending on the project development stage and characteristics of the project developer. Below is a non-exhaustive list of organizations and programs that have provided grants and loans to carbon project developers:
- DFID (United Kingdom)
- AFD (France)
- Global Environmental Facility (GEF)
- Austrian Energy Agency
- GIZ – HERA program