How can we finance sustainable energy for all?
As world leaders came together at the UN climate talks in Lima, Peru, to work together towards a new global treaty, leading politicians and thinkers are being urged to make sustainable energy available to all. Achieving this goal requires research in how people and communities use energy and how sustainable energy can be financed.
The Institute of Development Studies (IDS) explored some of these challenges in November at a one-day workshop on 'Financing sustainable energy for all', co-hosted by the International Institute for Energy and Development (IIED) and the Overseas Development Institute (ODI).
The event brought together different actors with a diverse range of perspectives. The aim of the meeting was for researchers to engage with investors, donors and practitioners (working in Haiti, Bangladesh, Peru and Kenya), to build a shared understanding of different experiences in financing sustainable energy.
Reaching the poorest
At the heart of the discussion was ensuring that sustainable energy provision stretches to the last mile, leaving no one behind. The session on reaching the poorest was delivered by Raffaella Bellanca, country director of the International Lifeline Fund in Haiti until October 2014; Sam Duby, technical director and co-founder of Access:Energy in Kenya, and Julio Eismann, managing director of Fundacion Acciona Microenergia.
- Acciona Microenergia provides solar home systems in Cajamarca, Peru, certainly targeting the last mile, in terms of poverty and isolation, in a country that has experienced strong economic growth and where 90 per cent of the population has access to electricity
- Access:Energy provides solar and hybrid microgrids in rural Kenya, where the electrification rate is only 19 per cent and there is a large suppressed demand, and
- The International Lifeline Fund provides sustainable cooking solutions in disaster situations, like the earthquake that devastated Haiti in 2010.
The business models of Access:Energy and Acciona Microenergia are very different, with Access:Energy following a market-based approach in which the business is totally sustained with the fees paid by their customers. This perspective assumes there is a willingness to pay for good quality electricity services, given the large amount spent by the poor on substandard energy services. The challenge is that it will inevitably leave behind many that cannot afford to pay.
Acciona Microenergia benefits from a cross-subsidy that allows rural customers in remote locations to pay a similar fee to urban customers. This is the social justice approach, which considers that the poor should not be made to pay more than the better-off urban population for energy services, even if providing those services to them is much more expensive. This can end up wrecking the financial sustainability of utilities and undermining the quality of the service provided.
Which is the best approach when working for sustainable energy for all? Under what circumstances can it be made to work? These are some of the key questions research on pro-poor access to electricity is seeking to address.
What else did we learn?
Effective use of public funds: How can public funds be used most effectively to attract private investment into decentralised and pro-poor energy access – given that the predominant use of public sector funding focuses on large-scale grid access, despite high demand coming from rural, off-grid areas. Investors claimed that "the finance is there", we just need appropriate business models and 'sophisticated investors' to increase investment in universal energy access.
Targeted support for different market areas: Achieving finance is only one of many key success factors. One speaker from the European Union (EU) Energy Initiative Partnership Dialogue Facility provided a list of five success factors that should complement one another:
- Enabling environment
- Technical capacity
- Information and networks
- Knowing what delivery models work
- ...and finally finance.
Additionally, there is a need to understand not just the technology market, but also the diverse local context.
Understanding how to build investor confidence in the business model: Business models vary greatly according to technology, market and country, and the need for different types of investors at different phases of business development and market evolution. The degree of interest by equity investors depends on a number issues, including: if social investors want to know about impact as well as returns, or if online crowdfunders are interested in supporting individuals and communities with inspiring stories to tell.
Where the market does not reach: Understanding the areas that markets cannot reach (disaster relief areas, the very poorest urban and rural communities and so on) and investigating the role of social protection as part of delivering a sustainable service (for addressing food security, education, health and so on) will require experts from a range of fields to sort out the challenges together.
Global processes to influence: A key area to watch is how funds from large-scale global funds, notably the Green Climate Fund (GCF), will be distributed, and how to ensure they will reach small and medium enterprises (SMEs), decentralised energy access initiatives and the poorest.
It was suggested that GCF could help provide working capital for SMEs and use blended finance instruments to do this (public, philanthropic, private). Another key area is the post-2015 development agenda, and thinking around what will be the best way to frame energy access, both as a separate goal and also embedded within other goals, and how to measure the impacts of such global interventions.
Gender: Much more can be done to understand gender as it relates to the financing of energy access, particularly at the decentralised level. The different roles, responsibilities and voice of women and men (girls and boys) within households, markets and communities drives differences in their access and use of energy, and the impact of energy services on their lives.
The workshop was a great opportunity to hear from a range of stakeholders and identified key challenges in moving towards a world where sustainable energy is financed for all.
If this workshop showed anything it is that, at the core of any future agenda, should be the experiences and knowledge of this diverse range of sectors.
This blog by IDS research fellow Ana Pueyo (firstname.lastname@example.org) and IIED principal researcher Emma Wilson (email@example.com) is part of a three-part series, and was orginally posted by IDS. The first blog in the series focused on cities and the climate crisis.