Let’s see financing energy access as an opportunity, not a challenge

Billions of people primarily in Asia and Africa lack access to energy and clean cooking. It’s shocking that countries are only putting a trickle of financing for energy access in these regions, says Sustainable Energy for All’s Rachel Kyte.

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

At the heart of efforts to slow climate change and build a more sustainable development future lies the often overlooked and shameful fact that, today, 1 billion people live without access to electricity and 3 billion without access to clean cooking. The challenge for those governments where there are significant energy gaps is a complex one: how to produce cleaner, affordable energy for far more people, far more quickly.

This is a challenge we must, and can, overcome. But if we’re to do that, we need to help countries unpack one of the key obstacles – lack of finance.

New SEforALL Energising Finance research released during the UN General Assembly, done in partnership with the World Bank, the African Development Bank, Climate Policy Initiative, Practical Action Consulting and E3 Analytics, targets countries in Sub-Saharan Africa and Asia with the biggest gaps in access to electricity and clean cooking countries.  

It analyses what countries are committing to energy access, how quickly and effectively the finance is being disbursed and financial challenges energy enterprises are facing in delivering modern energy services.

Overall investment in these countries is not nearly at the levels needed to meet key parts of UN Sustainable Development Goal (SDG) 7 – universal access to affordable, reliable and, with Paris Climate Agreement now in place, clean energy for all by 2030.

Decentralised renewable energy such as solar, offers a promising solution for these people, but precious little financing – only 1 per cent of the finance we tracked - is going into services for them.

 

Estimates indicate that $45 billion a year in investment is needed to achieve universal electrification access, but the latest data shows that finance commitments in the high-impact countries, representing 80 per cent of the global electricity access gap, average only $19.4 billion a year.

A significant increase in investment is especially needed in Sub-Saharan Africa countries where roughly half a billion people are living without power, most of them in hard-to-reach rural areas.

Decentralised renewable energy such as solar, offers a promising solution for these people, but precious little financing – only 1 per cent of the finance we tracked - is going into services for them.

Perhaps more shocking, despite 3 billion people worldwide lacking access to clean cooking, investments in clean fuels and technologies for cooking are even lower.

Finance commitments for residential clean cooking in the high-impact countries – representing 84 per cent of the global clean cooking gap – averaged about $32 million during the two-year period we analysed. Estimated annual residential clean cooking investment needs are at least $4.4 billion a year. We are orders of magnitude off the pace needed to ensure we leave no one behind.

But our research also shows myriad encouraging indicators, including modest gains in several countries that have made access to electricity and clean cooking political priorities. We’re also seeing early stage shifts in financing strategies by governments and development finance institutions that will target energy access solutions more effectively.

Bangladesh and Kenya, in particular, are making gains in urban and rural areas with more integrated electrification strategies that include centralised electric grid infrastructure and decentralised solar services, which are already powering millions of rural households.

They’re also enacting policies to spur diverse types of public and private finance for centralised and decentralised energy access projects and companies – such as the Infrastructure Development Co. (IDCOL) in Bangladesh, which is helping renewable developers gain access to local debt, and the rise of pay-as-you-go solar businesses like Mobisol and M-KOPA Solar in Kenya.

It’s no coincidence that Kenya and Bangladesh were among the top scorers of these 20 countries on energy access in the 2017 Regulatory Indicators for Sustainable Energy (RISE) report.

Still, scattered, incremental successes will never deliver the global results that are needed on energy access. More than ever, we need bolder, refined strategies that will catalyse larger and smarter investment in electricity and clean cooking access.

Government leaders, financiers and other key influencers need to work together with greater urgency toward targeted, integrated electrification strategies that emphasise both large grid-scale projects and decentralised energy.

Encouraging decentralised, renewable energy investments offers a cheaper, quicker, way to reach a critical segment of people whose economic potential – their productive capacity – is lost to the broader economy by not having reliable, affordable energy services.

We need to be focused on the economic dividend that comes from speeding up energy access – from better health and education outcomes and the new income derived from the business. 

We must also acknowledge, as confirmed by the woeful finance commitments, that it is time to have a frank dialogue on how to spur access to clean cooking, shifting the focus to how we create market-based strategies to deploy a range of clean fuels - as opposed to dirty, high-polluting fuels like charcoal - far more rapidly and at scale.

This research provides a first-ever picture to examine existing, generous, development finance flows to ensure they are having maximum impact, and to ask serious questions of governments about their own investment strategies using domestic resources.

In addition, as we build markets to serve such large numbers, it also points to room for patient capital from new sources – the faith communities, philanthropy and mission related investment, that can complement existing flows. 

But look back to where we started. The commitments governments made in adopting the SDGs and in joining the Paris Climate Agreement mean that we need to extend energy services to people who we have never reached before, and do so while decarbonizing.

The good news is that if we work together, we can still achieve universal energy access. The innovation and examples of success at small and medium scale across the world help show a pathway.

Yet we’re risking this future if we don’t meet the global challenge of attracting exponentially more finance that is used with much more discipline and urgency. If we do that, we will see the results we all want so much.   

Rachel Kyte is CEO and Special Representative of the UN Secretary General for Sustainable Energy for All (SEforALL). The new ‘Energising Finance’ research from SEforALL and partners is available at SEforALL.org/EnergisingFinance

This story was published with permission from Thomson Reuters Foundation.

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