Difference between revisions of "Financing Decentralized Renewable Energy for the Last Mile"

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= Overview=
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'''One of the key barriers to delivering energy solutions for the rural and urban poor is the limited access to finance at local and national levels and insufficient targeted finance flows at the international level. Despite commitments from international development organizations, Development Finance Institutions (DFIs) and investors, specific options and mechanisms to channel the finance to the right places are missing or yet to be clearly defined. To revitalize the discussion, [https://greeninclusiveenergy.org Hivos] has explored a variety of opportunities to utilize funding sources within and outside the energy sector, and to apply conventional and new instruments to help address the challenge of financing energy access through Decentralized Renewable Energy (DRE) solutions. This exercise resulted in a unique overview laid down in the discussion paper ‘[https://greeninclusiveenergy.org/publication/financing-decentralized-renewable-energy-for-the-last-mile/ Financing Decentralized Renewable Energy for the Last Mile: What funding sources and instruments can be applied?]’'''<br/>
  
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'''One of the key barriers to delivering energy solutions for the rural and urban poor is the limited access to finance at local and national levels and insufficient targeted finance flows at the international level. Despite commitments from international development organizations, Development Finance Institutions (DFIs) and investors, specific options and mechanisms to channel the finance to the right places are missing or yet to be clearly defined. To revitalize the discussion, [[www.greeninclusiveenergy.org|Hivos]] has explored a variety of opportunities to utilize funding sources within and outside the energy sector, and to apply conventional and new instruments to help address the challenge of financing energy access through Decentralized Renewable Energy (DRE) solutions. This exercise resulted in a unique overview laid down in the discussion paper ‘Financing Decentralized Renewable Energy for the Last Mile: What funding sources and instruments can be applied?’'''
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Enabling [[:Portal:Energy Access|energy access]] by connecting dispersed users to the national grid is expensive and is often prohibitively high for distribution companies in many countries faced with the energy access challenge. The alternative is to increase the deployment of DRE solutions. Research (from IEA) suggests that 70 percent of sub-Saharan Africa will be electrified through DRE and that DRE would be the least cost solution for the large majority of unconnected populations.
  
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Enabling energy access by connecting dispersed users to the national grid is expensive and is often prohibitively high for distribution companies in many countries faced with the energy access challenge. The alternative is to increase the deployment of DRE solutions. Research (from IEA) suggests that 70 percent of sub-Saharan Africa will be electrified through DRE and that DRE would be the least cost solution for the large majority of unconnected populations.
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However, despite the potential for DRE to address energy access, analysis indicates that <u>of the total energy access finance tracked in 2017, only 1.2% was directed towards DRE solutions</u>. There is overarching consensus that this is far too little. Moreover, instruments are lacking to target those communities that need it the most.
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However, despite the potential for DRE to address energy access, analysis indicates that of the total energy access finance tracked in 2017, only 1.2% was directed towards DRE solutions. There is overarching consensus that this is far too little. Moreover, instruments are lacking to target those communities that need it the most.
 
  
 
There are some specific challenges faced by international development organizations, DFIs and investors to finance DRE solutions to greater extend. These include: high transaction costs incurred by DFIs and International development organizations in financing smaller volumes or smaller ticket sizes; mismatched expectations on what are acceptable and realistic returns on investments in energy enterprises that are focused on the ‘last mile’, accompanied by a reliance on pure market-based approaches to address energy poverty; siloed perspectives of national governments and international organizations, preventing a more integrated approach where energy interventions could be financed as part of other development projects; and low risk appetite amongst national banks and local financial institutions to lend to the ‘last mile’, which may also be a consequence of limited understanding among local financiers of DRE financing and risk mitigation mechanisms.
 
There are some specific challenges faced by international development organizations, DFIs and investors to finance DRE solutions to greater extend. These include: high transaction costs incurred by DFIs and International development organizations in financing smaller volumes or smaller ticket sizes; mismatched expectations on what are acceptable and realistic returns on investments in energy enterprises that are focused on the ‘last mile’, accompanied by a reliance on pure market-based approaches to address energy poverty; siloed perspectives of national governments and international organizations, preventing a more integrated approach where energy interventions could be financed as part of other development projects; and low risk appetite amongst national banks and local financial institutions to lend to the ‘last mile’, which may also be a consequence of limited understanding among local financiers of DRE financing and risk mitigation mechanisms.
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== Downloads: ==
 
== Downloads: ==
  
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Discussion paper: '[https://greeninclusiveenergy.org/publication/financing-decentralized-renewable-energy-for-the-last-mile/ Financing Decentralized Renewable Energy: What funding sources and instruments can be applied?]'
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*Discussion paper: '[https://greeninclusiveenergy.org/publication/financing-decentralized-renewable-energy-for-the-last-mile/ Financing Decentralized Renewable Energy: What funding sources and instruments can be applied?]'<br/>
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*Briefing paper: '[https://greeninclusiveenergy.org/publication/financing-decentralize-renewable-energy-for-the-last-mile-briefing-paper/ Financing Decentralized Renewable Energy: What funding sources and instruments can be applied? - briefing paper]'<br/>
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= Further Information<br/> =
  
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Briefing paper: '[https://greeninclusiveenergy.org/publication/financing-decentralize-renewable-energy-for-the-last-mile-briefing-paper/ Financing Decentralized Renewable Energy: What funding sources and instruments can be applied? - briefing paper]'
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*[[Last Mile First: Maximizing the impacts of energy access across the SDGs|Last Mile First: Maximizing the impacts of energy access across the SDGs]]
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*[[Publication - Last Mile Distribution: state of the sector report|Publication - Last Mile Distribution: state of the sector report]]
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*[[Publication - Solving the Last Mile Distribution Challenge: a Call to Action from the Global Distributors Collective|Publication - Solving the Last Mile Distribution Challenge: a Call to Action from the Global Distributors Collective]]
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*[[Publication - Supporting Last-mile Women Energy Entrepreneurs: What works and what does not work|Publication - Supporting Last-mile Women Energy Entrepreneurs: What works and what does not work]]
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*Sustainable Energy for All (SEforALL) and the Climate Policy Initiative (CPI) (2018). Understanding the Landscape – Tracking Finance for Electricity and Clean Cooking Access in High-Impact Countries. License: NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0). [https://www.seforall.org/sites/default/files/EF-2018-UL-SEforALL.pdf https://www.seforall.org/sites/default/files/EF-2018-UL-SEforALL.pdf]
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*Practical Action (2017) Poor people’s energy outlook 2017: Financing national energy access: a bottom-up approach, Rugby, UK: Practical Action Publishing. [http://dx.doi.org/10.3362/9781780446813 http://dx.doi.org/10.3362/9781780446813]
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*Rai, N, Best, S and Soanes, M (2016) Unlocking climate finance for decentralised energy access. IIED-Hivos, London. [https://greeninclusiveenergy.org/publication/unlocking-climate-finance-for-decentralised-energy-access/ https://greeninclusiveenergy.org/publication/unlocking-climate-finance-for-decentralised-energy-access/]
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*Mazza, F. and Meattle, C. (2019). Finding a Common Language to Advance Energy Access. SEforAll webpage. [https://www.seforall.org/news/finding-a-common-language-to-advance-energy-access https://www.seforall.org/news/finding-a-common-language-to-advance-energy-access]
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*Pedrajas, M. (UNDP) and Choritz, S. (UNCDF) (2016). Getting to the last mile in Least Developed countries. UNDP and UNCDF, New York. [http://www.undp.org/content/dam/undp/library/SDGs/English/getting-to-the-last-mile-oct-2016.pdf http://www.undp.org/content/dam/undp/library/SDGs/English/getting-to-the-last-mile-oct-2016.pdf]
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*Kaijage, E., Nyagawa, S., Best, S., Cosmas, R., Temba, S., Mtwanga, B., Mahanga, N. (2017) Money is Power: Tracking finance flows for decentralised energy access in Tanzania. IIED Working Paper. IIED, London. [http://pubs.iied.org/16623IIED http://pubs.iied.org/16623IIED]
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*Scott, A. and Pickard, S. (2018). Energy safety nets – a literature review. (Working paper). CAFOD and ODI, London, UK. [https://www.odi.org/publications/11217-energy-safety-nets https://www.odi.org/publications/11217-energy-safety-nets]
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*Garside, B, Johnstone, K, and Perera, N (2019) Moving More Money: Can aggregation catalyse off-grid financing? IIED Issue Paper. IIED, London. [http://pubs.iied.org/16651IIED http://pubs.iied.org/16651IIED]
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*Pereira, N. and Garside, B. (2019). Bridging the gap: how inclusive finance boosts access to off-grid energy. Briefing Paper, IIED, London. Accessible at [http://pubs.iied.org/17494IIED http://pubs.iied.org/17494IIED]
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*Results based financing (webpage) EnDev. [https://endev.info/content/Results-Based_Financing https://endev.info/content/Results-Based_Financing]
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*Sturla, K. and Anderson, E. (2019). With so many financial instruments out there- when and how to do Results-based Financing. Blogpost, Next Billion. [https://nextbillion.net/when-and-how-results-based-financing/ https://nextbillion.net/when-and-how-results-based-financing/]
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*Weber. E, Hirner, V., and Geres, P. (2018). Results-based Financing for Energy Access: Lessons learnt. EnDev. [https://endev.info/images/e/e4/EnDev_-_Results-based_Financing_for_Energy_Access,_Lessons_report.pdf https://endev.info/images/e/e4/EnDev_-_Results-based_Financing_for_Energy_Access,_Lessons_report.pdf]
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*Doukas, A. and Bast, E. (2017) Fossil fuel finance at the Multilateral Development Banks: the low-hanging fruit of Paris compliance. Oil change International. [http://priceofoil.org/content/uploads/2017/05/MDBs-Finance-Briefing-2017.pdf http://priceofoil.org/content/uploads/2017/05/MDBs-Finance-Briefing-2017.pdf]
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*Karl, J. and Choritz, S. (19 July 2016). Reaching the last mile: The role of innovative finance in meeting the SDGs. Blogpost. [https://oecd-development-matters.org/2016/07/19/reaching-the-last-mile-the-role-of-innovative-finance-in-meeting- https://oecd-development-matters.org/2016/07/19/reaching-the-last-mile-the-role-of-innovative-finance-in-meeting-] the-sdgs/
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*Johnstone, K., Rai, K. and Mushi, F. (2019). Remote but productive: Practical lessons on productive uses from Tanzania. Hivos and IIED. [https://energychangelab.org/publication/remote-but-productive-practical-lessons-from-tanzania/ https://energychangelab.org/publication/remote-but-productive-practical-lessons-from-tanzania/]
  
 
[[Category:Energy_Access]]
 
[[Category:Energy_Access]]

Latest revision as of 10:13, 26 November 2019

Overview

One of the key barriers to delivering energy solutions for the rural and urban poor is the limited access to finance at local and national levels and insufficient targeted finance flows at the international level. Despite commitments from international development organizations, Development Finance Institutions (DFIs) and investors, specific options and mechanisms to channel the finance to the right places are missing or yet to be clearly defined. To revitalize the discussion, Hivos has explored a variety of opportunities to utilize funding sources within and outside the energy sector, and to apply conventional and new instruments to help address the challenge of financing energy access through Decentralized Renewable Energy (DRE) solutions. This exercise resulted in a unique overview laid down in the discussion paper ‘Financing Decentralized Renewable Energy for the Last Mile: What funding sources and instruments can be applied?’

Enabling energy access by connecting dispersed users to the national grid is expensive and is often prohibitively high for distribution companies in many countries faced with the energy access challenge. The alternative is to increase the deployment of DRE solutions. Research (from IEA) suggests that 70 percent of sub-Saharan Africa will be electrified through DRE and that DRE would be the least cost solution for the large majority of unconnected populations.

However, despite the potential for DRE to address energy access, analysis indicates that of the total energy access finance tracked in 2017, only 1.2% was directed towards DRE solutions. There is overarching consensus that this is far too little. Moreover, instruments are lacking to target those communities that need it the most.

There are some specific challenges faced by international development organizations, DFIs and investors to finance DRE solutions to greater extend. These include: high transaction costs incurred by DFIs and International development organizations in financing smaller volumes or smaller ticket sizes; mismatched expectations on what are acceptable and realistic returns on investments in energy enterprises that are focused on the ‘last mile’, accompanied by a reliance on pure market-based approaches to address energy poverty; siloed perspectives of national governments and international organizations, preventing a more integrated approach where energy interventions could be financed as part of other development projects; and low risk appetite amongst national banks and local financial institutions to lend to the ‘last mile’, which may also be a consequence of limited understanding among local financiers of DRE financing and risk mitigation mechanisms.

Against this background, the discussion paper describes the energy finance needs of key stakeholders, including energy users, energy providers and enabling environment actors, and the potential instruments and mechanisms to meet these needs. From the supply side, it describes the current sources of finance, the existing gaps and the opportunities to utilize them as well as potential new sources. This includes examples of where they have been used before in the energy delivery value chain- consumer credit, enterprise finance or strengthening the energy ecosystem or enabling environment.  In all the opportunities, soft funding sources particularly grants and subsidies play an important role in bridging the energy access gap. Substantial increases are needed in these sources of public funding to leverage commercial investment and to ensure that those in the ‘last mile’ are reached. The paper ends with a list of recommendations.

Downloads:

Further Information

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