Finance For Energy For All

updated December 2016

The cost of providing universal access to modern energy services in the world’s poorest countries is very sensitive to the interpretation of “access” for individual households. The Africa Progress Panel, headed by Kofi Annan, suggests a figure of $55 billion per annum through to 2030, for Africa alone. The African Development Bank would regard this as too low, whilst many US and European development agencies might take the opposite view.

Most current projects of significant scale in developing countries are devoted to extending grid services for urban and industrial customers. Although fraught with political and other risks, this is familiar financing territory for multilateral development banks, private sector corporations and domestic governments.

The African Development Bank has set the pace with its New Deal on Energy for Africa, a vision of universal energy access on the continent by 2025, five years earlier than the UN’s Sustainable Development Goal. The AfDB aims to mobilise $60-$90 billion per year, securing 130 million on-grid connections, 75 million off-grid connections and clean cooking solutions for 150 million households. These are radically ambitious targets.

These aspirational programmes announced by development banks and donor governments all depend on leverage of private sector investment. Despite such faith in public-private partnerships, the commercial reality is that private finance generally prefers fossil fuel generation over renewables and it prefers middle class urban customers to the rural poor.

This explains why the rash of funding promises to support Sustainable Energy For All, the initiative championed by the former UN Secretary-General, Ban Ki-moon, tend to lack detail. For example, the European Commission has promised to facilitate access to modern energy supplies for 500 million people by 2030. This represents a significant proportion of the global goal but there are few indications of how and where such a commitment might be delivered.

Ironically, the off-grid needs of the poorest households may bring out the best in entrepreneurship. These households already pay for expensive kerosene and candles for lighting, perhaps as much as $10 per kWh in sub-Saharan Africa, compared with an average of $0.12 that US citizens pay for the same unit of energy. Correcting this inefficient allocation of resources fits the mantra of a market solution, already with strong evidence of momentum.

For example, innovative repayment models for loans to purchase micro-energy installations are proliferating, in response to competition and to the needs of the poorest families. For a basic solar home system, the repayment burden is increasingly affordable, as costs are falling rapidly and the efficiency of appliances is rising.

There is undoubtedly a frenzy of entrepreneurial solar business activity in Africa and South Asia, backed by diverse funding sources and partnerships. Reports from Bangladesh suggest that 50,000 solar home systems are being installed each month. The dream scenario is to reproduce the success of mobile phone distribution, now closing in on universal coverage, even in the poorest countries.

Climate finance offers another source of optimism for meeting the energy needs of the poorest households. Energy poverty makes a significant contribution to global warming. This apparent contradiction occurs in three ways, each associated with traditional biomass cookstoves.

The UN Food and Agriculture Organization reports that a very high percentage of wood removed from forests in sub-Saharan Africa is for burning on domestic stoves or for charcoal production. Deforestation is a key source of carbon dioxide emissions.

Smoke from the cooking fires is believed to contribute almost a quarter of worldwide black carbon emissions, one of the causes of global warming. The combustion itself emits carbon dioxide in a particularly inefficient method of heat conversion. Africa’s energy intensity per unit of GDP is higher than any other continent.

Development projects for conversion to modern stoves or installation of low carbon mini-grid capacity therefore have a very strong claim on international climate finance which is supposed to reach $100 billion per annum by 2020. The Clean Development Mechanism, long established under the Kyoto Protocol, encourages investment finance for low carbon technologies, such as clean cookstoves, in exchange for carbon credits.

There are two core concerns about climate finance for addressing energy poverty. First, there is a long queue of competing claims for emissions reduction schemes. Second, the international market for carbon credits continues to be dysfunctional, yielding inadequate returns to investors.

******


Clean Energy for All – the Climate Parliament has launched a campaign to persuade governments to switch subsidies for fossil fuels to renewable technologies
from Hedgerley Wood


Michael Liebreich, CEO of Bloomberg New Energy Finance discussing the “bottom-of-the-pyramid” business case for eradication of energy poverty
from UN Foundation

more Energy For All briefings
Energy Poverty
Sustainable Development Goal for Energy
Global Energy Divide
Electricity and Cookstove Solutions
The Coal Dilemma
Source material and useful links

Comments are closed.

Switch to our mobile site