Inclusive finance for universal energy access

The financing gap for universal energy access (Sustainable Development Goal 7) is persistent and enormous. IIED is exploring how finance instruments and models can be better calibrated to more rapidly deploy electricity and clean cooking systems to achieve energy for all.

People putting up solar panels

The technologies to achieve universal energy access are field tested and available. But the delivery models are still being refined and the inflows of investments remain far too little to achieve energy for all.

For electricity, the grid continues to attract the majority of financing, with crucial off-grid systems such as mini-grids only receiving 1.2% of total finance. Off-grid systems will play a vital role, complementary to grid expansion, and are often deployed more efficiently and at lower cost. To reach remote communities and the poorest, it is essential to fine-tune financing for these off-grid systems.

Financing into clean cooking has actually decreased, a worrying trend. Indeed, magnitudes more of investments are needed to jumpstart access to clean cooking. The pace of funding for both electricity and clean cooking must rapidly accelerate to reach the 2030 deadline for the Sustainable Development Goals (SDGs).

What is IIED doing?

In recent years, we have tracked various flows of funding, including climate finance, into the off-grid energy sector, and investigated ways to further catalyse financing into the sector.

In 2019, we deepened our research into the potential for finance aggregators – entities that reduce costs and risks by bundling projects and capital together – to increase public and private investment into the off-grid sector.

In our Moving More Money issue paper, we found that the Infrastructure Development Company Limited (IDCOL) in Bangladesh and Alternative Energy Promotion Centre (AEPC) in Nepal, both government initiatives, have enabled energy access for some of the poorest in their respective countries by aggregating demand and offering mixes of finance in the smaller sizes that burgeoning markets can use. And SunFunder, a financial intermediary, has shown the potential for blended finance instruments in attracting more investments.

Yet more discussion and understanding are needed around the appropriate role for public financing, and how inclusive financing instruments can help energy enterprises expand their reach.

This research also highlights the importance of additional business, market, and policy support activities to establish sustainable energy enterprises. In the Accelerating energy access with aggregation briefing the promise of financing aggregation, and the components needed to support investments, is highlighted. Results-based financing built on impacts is showing great promise in Zambia and aggregating mini-grids is seemingly an attractive pathway to ‘crowding in’ more investments.

However, deeper impact metrics must be established to understand if and how energy systems are addressing the wants and needs of communities. IIED is working with partners to try and uncover agile metrics that could be standardised across the sector. This will also help identify people and communities that are not being reached.

The policy brief Bridging the gap: how inclusive finance boosts access to off-grid energy, shows how policymakers, financiers, civil society and the private sector can leverage ‘inclusive’ financing models to unlock the delivery models and investments needed to provide off-grid systems to marginalised communities and bridge the energy access gap. In short, more public money is needed, but it also needs to be better targeted.

We are working to build evidence on what types of finance instruments work in stimulating energy access in different contexts. We are exploring instruments that hold particular promise in enabling energy access for communities and people that will not be reached through established delivery models, including smartly deployed subsidies such as results-based and inclusive financing.

We are also working to ensure that financing is being used to address the barriers that affect women and marginalised groups so that financing for energy doesn’t reinforce existing power structures but generates energy opportunities for everyone.

We are taking our findings to policymakers, investors and enterprises to help catalyse the flow of public and private finance towards off-grid solutions and accelerate energy access. 

Resources

Accelerating energy access with aggregation, Kevin Johnstone, Ben Garside (2019), IIED Briefing

Moving more money: can aggregation catalyse off-grid financing?, Ben Garside, Kevin Johnstone, Nipunika Perera (2019), IIED Issue paper

Bridging the gap: how inclusive finance boosts access to off-grid energy, Nipunika Perera, Ben Garside (2019), IIED Briefing

Turning up the volume: financial aggregation for off-grid energy, Clare Shakya, Rebecca Byrnes (2017), IIED Issue paper

Money is power: tracking finance flows for decentralised energy access in Tanzania, Erneus Kaijage, Shukuru Nyagawa, Sarah Best, Remigi Cosmas, Suzan Temba, Benjamin Mtwanga, Novetha Mahanga (2017), IIED Working paper

Blog: Bringing solar out of the shadows, by Sarah Best (2017)

Unlocking climate finance for decentralised energy access, Neha Rai, Sarah Best, Marek Soanes (2016), IIED Working paper

Financing inclusive low-carbon resilient development in the least developed countries, Dave Steinbach, Nanki Kaur, Neha Rai (2015), IIED Working paper 

Sharing the load: Public and private sector roles in financing pro-poor energy access, Emma Wilson, Neha Rai, Sarah Best (2014), IIED Discussion paper

Contact

Kevin Johnstone (kevin.johnstone@iied.org), researcher, IIED's Shaping Sustainable Markets research group.

Ben Garside (ben.garside@iied.org), principal researcher, IIED’s Shaping Sustainable Markets research group.

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