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Sharing the load: who pays for energy access?

May 29, 2015

Finance for off-grid energy is increasing – the big challenge is working out how best to blend public and private investment to deliver energy services for poor communities.

 Sinteyo and the women's group with solar panels at the greenhouse, Isiolo.

Community Based Green Energy Programme, Isiolo, Kenya. Sinteyo and the women’s group with solar panels at the greenhouse. Annie Bungeroth/CAFOD.

Policy makers are increasingly recognising that off-grid solutions offer the potential to rapidly increase access to energy in poor communities. But what is less clear is how to make the finance work. The question was raised at last week’s United Nations Sustainable Energy For All Forum – and will be the focus of a session organised by CAFOD, CIDSE and IIED at the EU Development Days (EDD) in Brussels next week. What are the different roles for public and private investment in financing energy access, particularly for the poorest people?

The EDD is the EU’s annual development forum and Sustainable Energy for Growth is a key theme this year.  The EU has recently boosted its energy spending through Electrifi, a 75 million euro facility, using aid budgets to provide early stage risk capital for off-grid electrification. So finance will be a hot topic.

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Our panel debate (4 June) will root these discussions in real-world experience.  Our panellists – working in Kenya, India, Indonesia and globally – will share insights from private-sector investors, donors, service providers and project developers, and civil society.  We’ll be asking: how do we scale up investment in decentralized energy systems? Where is public money needed? Where is private money needed? What else needs to change to make finance flow?

Scaling up investment in off-grid energy

Development experts tend to agree that off-grid energy, such as mini-grids or solar home systems, are often cheaper and more sustainable than extending the grid to reach poor or remote communities.  Typically it is smaller players – small and medium-sized enterprises or social enterprises with strong links to local communities – who are delivering these services. Large power utilities may be too inflexible, debt-ridden or politicised to invest.

But getting money to small-scale energy schemes face many barriers, from the high transaction costs of many small projects to rigid energy policies that still favour large-scale generation.

Clarifying public and private finance roles

A dilemma for policy-makers is working out how scarce public funds should be best targeted to attract investment in off-grid markets and to fill the gaps where the private sector cannot make a return.

From IIED and CAFOD’s work on energy finance and delivery models, several priorities are emerging:

  • Recognise the variety of energy markets. People living in poverty do not form a homogenous group.  A commercial or semi-commercial approach might work for energy providers serving people living on $US3-5/day, but a cost-recovery or non-profit solution is needed for people living on subsistence or extreme poverty.  Governments, investors, business and NGOs need to know who they aim to reach. 
  • Fund local preparatory work. Successful projects require intensive local-level design and engagement work to tailor services to diverse energy needs, build demand and people’s capacity to use, maintain and benefit from new energy supplies. Collaborating with local NGOs and service providers can strengthen services and impacts. This is why CAFOD and IIED are piloting approaches to design energy services from the ‘bottom-up’.  More public money is needed for the start-up stages, which private investors are unlikely to fund. 
  • Energy for income-generation. Energy can be expensive for poor people, so unless it is linked to income earning opportunities, it may not be financially sustainable. Public funding can be used to support this – funding agricultural advice, market analysis or business management advice, for example.  
  • Build markets not winners. Governments and donors need to shift from ‘picking winners’ and take a more comprehensive approach to building energy markets in low income communities. This may mean reforming policies, building institutional capacity, trying different delivery models, or expanding access to capital.  There is no one size fits all – it needs to work for different local realities. 

From New York to Brussels

The Brussels debate will be an opportunity to test these ideas – and draw in lessons from New York, where we held a similar session with CAFOD and the World Resources Institute (WRI).

With speakers from the SELCO Foundation, the Clean Energy Access Network and DIFFER, there seemed to be a consensus that financing has to be better tailored to suit different energy needs across different ‘market segments’, from people living in abject poverty to those with a slightly higher income (e.g. $3-5/day), and that investing in productive uses of energy was a priority.

Where the fault lines opened up was over whether private finance ‘should’ accept higher risks and lower returns to get energy services to poorer customers.

People had different views on whether more public finance was needed to subsidise energy for the poorest – or if it was a question of redirecting existing public subsidies.  The question of how to measure and prioritise donor spending also came up.  Most people agreed that supply-based measurements, such as the number of kilowatt hours generated, do not make sense for poor communities (who do not consume much).

This also links to wider calls for “access” to energy to be measured differently in the proposed Energy Sustainable Development Goal to lift people out of poverty – tracking access to different levels or “tiers” of services and evaluation whether they are good enough quality, reliable, affordable and safe enough be usable on the ground. For more on this, see my previous post.

One suggestion  was that development agencies should adopt a ‘value based’ rather than ‘cost-based’ approach – linking the public financing to the level of development impact that different levels of energy service would bring. This would mean weighing up the pros and cons of delivering a low level of service to many people (e.g. lighting, mobile charging, TV and fan) over a higher level service to fewer people (eg power for an air conditioner, microwave and washing machine, or productive uses).

We hope that our discussions in New York and Brussels will help create a better understanding of how the public and private sectors can better work together.

You can join the debate by voting in our EDD survey on financing energy access for the event: download the app here.

This blog was written by Sarah Wykes with Sarah Best with Ben Garside. Sarah Best (sarah.best@iied.org) and Ben Garside (ben.garside@iied.org) are Senior Researchers working on energy in IIED’s Sustainable Markets Team.

UN Women’s new report: Transforming economies, realising rights

April 29, 2015

On Monday, the UN Women’s new flagship report, Progress of the World’s Women 2015-16: Transforming Economies Realising Rights, was released in London.

TProgress 2015 ENGLISH cover-155widthhe publication argues that the current economic framework is not working for women and has ‘shifted power relations in ways that undermine the enjoyment of human rights and the building of sustainable livelihoods’. Usefully, it goes on to provide some very concrete examples of what governments (and donors and even INGO’s) can do to tackle these challenges (for more on this see the infographic on pg 10 of the executive summary). (more…)

What if? Scenario planning for post-2015

April 21, 2015

CAFOD has written a discussion paper on potential scenarios for 2015. Download it here and share your thinking in the comments section below >> What if Scenario Planning discussion paper

Negotiations across three processes at the UN are now in full swing. 2015 was always going to be a busy year for multilateralism, with the Financing for Development conference in July, the Post-2015 Summit in September, and the UNFCCC COP 21 in December. Big outstanding questions remain on how this year is going to deliver ambition across multiple fronts.

Which scenario do you think is most likely?

Which scenario do you think is most likely?

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The first post-2015 negotiations: stocktaking

February 3, 2015

The first intergovernmental negotiations (IGN) took place on 19 – 21 January 2015, signalling the beginning of the final phase of the post-2015 process. The Irish and Kenyan co-facilitators have released an indicative roadmap which outlines a clear agenda until May, after which there are three final sessions to address outstanding issues. (more…)

Updated UN Post-2015 roadmap

January 19, 2015

As a tool to help stakeholders engage with the UN this year, we’ve pulled together an overview of the Financing for Development (FFD), post-2015 and UNFCCC (UN Framework Convention on Climate Change) processes this year. It also includes other key moments such as the President of the General Assembly’s High Level Events and the meeting of the High Level Political Forum (HLPF).

CAFODPost2015roadmapv5

It doesn’t include other important moments such as the 59th meeting of the Commission on the Status of Women, which takes place from 9 – 20 March, and marks the 20th anniversary of Beijing. March also hosts the 3rd WCDRR in Sendai, which some are treating as the canary in the mine for other UN processes which follow later in the year.

Please get in touch if you see any info which is missing or inaccurate. Here’s to 2015 delivering on all fronts!

Climate talks in Lima: money talks

December 5, 2014

As the fifth day of the Lima climate talks get underway the role of climate finance is again emerging as a crucial issue. Recent announcement by developing countries about financial contributions to the initial capitalisation Green Climate Fund – including the UK’s commitment to provide £720 million – has gone a long way in showing willing, but the lack of space for discussion on finance at the COP in Lima is putting that at risk.

The discussion on ‘INDCs’ or intended nationally determined contributions – each country’s individual plan for tackling climate change – are taking centre stage in Lima. There is much work to be done amongst parties to establish what exactly should be contained in the INDCs and how those elements included could be comparable so a clear idea of ambitious could be established ahead of Paris. 

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Reading UNSG’s post-2015 synthesis report: ‘The Road to Dignity by 2030′

December 4, 2014

Today saw the publication of the UN Secretary General’s long-awaited synthesis report on the post-2015 development agenda. Here’s a quick analysis from CAFOD’s point of view, remembering that the report has to tread a fine political line between many different priorities.

The Secretary General delivers a positive input to the post-2015 process

The Secretary General delivers a positive input to the post-2015 process

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Thoughts on the UN SG’s post-2015 synthesis report

December 2, 2014

The next stepping stone in the post-2015 process is the long-anticipated Synthesis Report from the UN Secretary General due out as an advanced unedited copy on Thursday 4th December. This report will draw on multiple inputs, such as the Open Working Group (OWG) proposal for Sustainable Development Goals, the UN High Level Panel report from 2013 and the report on financing sustainable development also from last year, as well as many more letters, position papers and petitions from across civil society and other stakeholders. Bringing together these diverse strands is obviously a difficult task and getting the right balance between these different pieces will require great diplomatic skill.

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DFID’s approach to economic development: answering David Kennedy’s call to engage

November 27, 2014

On Monday I was the lucky recipient of a last-minute ticket to the PWC International Development Conference when a colleague wasn’t able to attend any more. David Kennedy, the newly appointed Economic Development Director General, gave an impressive-20-minute-no-notes opening address focussing on DFIDs approach to economic development.

David Kennedy speech

David Kennedy speaking at the PWC International Development Conference, 24 November 2014. Source: twitter

He emphasised throughout that DFID are still developing much of their thinking and that they would welcome discussion on this. He ended by saying, “if you have any other questions or thoughts, send me an email, I’d love to engage” – and so, taking this offer at face value, here are my three points:

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What is the social impact of the World Bank’s support to regulatory reform? Don’t ask the Bank

November 25, 2014

The World Bank Group’s Independent Evaluation Group highlights that the Bank’s support to business regulation reforms fails to capture the social impact of regulatory reform. In this blog, first published by the Bretton Woods Project we look at this critique in more detail.

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