Aggregating off-grid energy solutions to deliver SDG7 energy access
IIED spoke with 23 companies in Bangladesh, Nepal and East Africa that have received financing from three intermediaries or ‘aggregators’. Our analysis shows the promise of aggregating off-grid solutions as a method to attract more financing for energy access.
Nipunika Perera was a researcher in IIED's Shaping Sustainable Markets research group until October 2021
Getting energy to everyone will require a mixture of technologies, with off-grid energy systems – such as mini-grids or clean cookstoves – complementing large grid infrastructure. Aggregation has great potential to channel finance into the millions of off-grid projects and products that will be needed to achieve universal energy access by 2030.
What are aggregators?
Aggregators are financial or technical intermediaries that bring together projects and companies into portfolios that reduce transaction costs, mitigate risks and increase investment sizes in order to attract larger investors.
Aggregation can also be used to create new investment products; for example by bundling up smaller loans, blending public-private finance or by merging several projects and their assets into a single investment vehicle.
Many aggregators do more than pool finance on the supply side. A scene-setting paper for this project, ‘Turning up the volume’, showed how vehicles may aggregate customer demand, different types of technologies and business models, or market-building functions such as capacity building.
What did IIED do?
Our report, ‘Moving more money’, examined three aggregators to understand the financial instruments used, the experience of energy companies accessing funds, and the impacts for poor people. Our work built on earlier research by IIED’s climate change team on climate finance mechanisms.
The Alternative Energy Promotion Center (AEPC) in Nepal, the Infrastructure Development Company Limited (IDCOL) in Bangladesh, and SunFunder in East Africa, have all forged unique pathways for ‘crowding in’ more public and private finance and providing support beyond financing to grow off-grid markets.
The aggregators we studied are providing a variety of support measures such as building demand, awareness raising, quality assurance and monitoring, training, data collection and information sharing. The finance and the supporting services are bundled differently for different markets to address unique needs.
Our findings showed IDCOL and AEPC – which are both government initiatives – have reached some of the poorest and most remote communities through generous subsidy schemes, with IDCOL mixing subsidies with concessional loans.
The commercial aggregator, Sunfunder, attracted significant investments, disbursing multi-million dollar loans to larger companies while also being able to offer some of the smallest disbursements in the industry.
While all three were quite successful in expanding access, each aggregator has faced significant challenges. The subsidy-heavy programmes of IDCOL and AEPC have not responded to changing market conditions as rapidly as Sunfunder.
And without the mandates or subsidies of AEPC and IDCOL, Sunfunder will have to seek alternative ways to reach underserved markets – with one idea being to form partnerships that couple debt with grants.
Our research recommended that governments, development finance institutions, companies, aggregators and other stakeholders:
- Channel more public finance into inclusive financial instruments: governments can learn from Nepal and Bangladesh, where public funds, mobilised as subsidies and concessionary loans, have incentivised off-grid energy in marginalised communities.
- Explore and test out special-purpose platforms, such as aggregators, to blend public-private finance and enable closer collaboration between funders, enterprises and the state. These could operate at a national or provincial level and include a focus on experimentation – helping different players to test and scale interventions.
- Couple financial instruments with grant-funded capacity development initiatives, particularly targeting early stage companies.
- Strengthen coordination among public and private stakeholders to prevent overlap and stimulate synergies: development finance institutions undermined one aggregator by funding them directly while circumventing the aggregator and offering loans directly to their customer base; while another aggregator found unexpected grid extension by government sapped demand for off-grid products.
- Apply conditions whereby access to finance is contingent on energy companies complying with product standards and quality assurance.
- Be bolder in the information shared publicly as more data can stimulate market growth and helps actors adjust quickly to changing conditions.
- Collaborate to establish richer impact metrics and use these to better target energy investments, policies, business models and products toward the poorest citizens.
Blog: The Green Climate Fund: will the vulnerable be overlooked in a rush to spend?, Neha Rai, Sarah Best (2017)
Unlocking climate finance for decentralised energy access, Neha Rai, Sarah Best, Marek Soanes (2016), Working paper
Financing inclusive low-carbon resilient development in the least developed countries, Dave Steinbach, Nanki Kaur, Neha Rai (2015), IIED Working Paper