Is energy access finance finally ready to flow?

by Christine Eibs Singer, Power for All
Friday, 7 April 2017 10:57 GMT

Technicians are silhouetted as they fix cables on a power transmission line in Karachi, Pakistan, January 9, 2017. REUTERS/Akhtar Soomro

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Insufficient financing has long plagued efforts to get electricity to the 1 billion rural poor who wake up every day without it.

But some recent signs -- a $3.5 billion debt fund, the expected approval of a $150 million first-of-its-kind World Bank “off-grid” loan and local African and Asian commercial banks entering the fray -- indicate that things are changing.

Not fast enough, and not necessarily in all the ways needed, but the momentum could have positive implications for how quickly the international community is able to provide universal electricity access to rural poor in Sub-Saharan Africa, South Asia and other regions that currently have zero power supply.

 For energy poverty to be eradicated, different “colors of money” - including debt, equity, subsidy and grant - will be required.

The $150 million World Bank loan to Kenya, which is still pre-board approval but in advanced stages of review, will mark the first bank project in Africa that is 100 percent dedicated to off-grid solar. It would also be the first time a national government in Africa has taken a loan exclusively for off-grid energy infrastructure (as opposed to grants).

For an institution like the World Bank that is largely reactive to “client” (i.e. national government) demand, the fact that a top 10 African economy feels confident enough to ask for a loan specifically for decentralized renewable energy (DRE) is a major market signal for mini-grids and solar home systems.

While encouraging, the World Bank still needs to be able to retail smaller transactions (since most DRE projects are by their very nature smaller deals) or become much more efficient and rapid in working with intermediaries to get funds into DRE, such as the Development Bank of Ethiopia.

Meanwhile, some national commercial banks, previously uninterested in backing electrification of rural poor due to high transaction costs and unbanked consumers, are dipping their toe into the energy access space with concessional and local currency financing.

In Nigeria, home to one sixth of the 620 million Africans without electricity, the Bank of Industry recently announced a 1 billion naira ($3.3 million) fund to drive expansion of rooftop solar and mini-grids for households and businesses. The Commercial Bank of Africa and others have also begun providing local currency financing to several DRE companies in eastern Africa.

 Adequate debt finance has also been scarce, but increased finance is on the horizon,  with the change in part due to the Green Climate Fund (GCF). With initial backing from GCF, DeutscheBank created the aforementioned $3.5 billion fund, initially targeting five African countries.

The Global Green Growth Institute (GGGI) is also expected to receive GCF approval for a $100 million debt fund for India later this year. (On the equity side, GCF also supported KawaSafi Ventures, which aims to deploy $100 million).

The African Development Bank (AfDB), which has traditionally had a weak track record for investing in rural decentralized solutions, approved a $100 million financing package to seed the Facility for Energy Inclusion (FEI), a $500 million pan-African renewable energy access debt fund.

This investment approval was the first big step by the AfDB to deliver on its New Deal for Energy in Africa commitments for energy access, in part through distributed renewables. CDC Group is also set to launch a pay-as-you-go decentralized solar debt fund.

With the exception of patient, early stage capital for start-ups, equity has not been an issue to date, but there are some concerns about hype in the DRE sector, as recently outlined by family office Ceniarth. Without doubt, there will be companies that win and lose in the race to achieve universal energy access, and a self-correction and consolidation should be expected down the road.

All this capital lining up for the DRE sector is good news, but it’s not cause for celebration yet. Actually getting access to this capital is still to be proven. Experience to date is that the pricing, structure and timeline to decision-making by investors and lenders may continue to make access to capital a critical barrier to scale.

Innovation in processes, deal structures and risk mitigants need to be part of these new capital flows, or the inertia of “business as usual” will continue to make access to capital a challenge, and therefore access to clean, affordable energy as well.

Christine Eibs Singer is the director of global advocacy at Power for All