The next two years will be vital to deliver the promise set out in UN Sustainable Development Goal 7 (SDG7) -- access to affordable, reliable, sustainable and modern energy for all. As the world recovers from COVID-19, significant investment is needed to deliver universal energy access, which will not only support individual livelihoods but underpin the productivity and growth of entire economies.
The off-grid energy sector (solar home systems and mini-grids) will play a pivotal role in bringing electricity to the 789 million people worldwide currently living without any access and lifting millions more out of energy poverty. Decentralized energy solutions present a huge opportunity, yet they are a vastly untapped market. Sustainable Energy for All’s (SEforALL) Energizing Finance research found that investment in off-grid solutions was only 1.2 percent of the total finance for electricity tracked among the 20 countries worldwide with the highest access deficits.
This problem can be exacerbated by the current pandemic, with governments and financiers directing their resources to public health spending and social supports. Except there is one fact that shouldn’t be overlooked: the energy that the off-grid sector provides is essential for powering health facilities, establishing cold chains for delivering a vaccine and catalysing economic activity.
In short, we are at a defining moment for the off-grid sector. To unleash its full potential and help countries ‘Recover Better’ from COVID-19, we cannot continue with status-quo approaches to supporting the sector. A much higher degree of public-private partnership is needed that brings together donors, governments and businesses at local, national and regional levels to ensure off-grid projects are financed. At the same time, financiers need assurance that their investment is delivering results in the form of verified energy connections.
Results-based financing (RBF) is an important finance mechanism that can deliver the speed and scale required to achieve SDG7 by improving the efficiency of funds disbursement and only disbursing after agreed results have been achieved. In 2019, leading commercial and social impact investors with billions of dollars under management called for a unified Africa-wide RBF facility, which they said was a needed de-risking signal for them to enter the energy access market more aggressively.
Many RBF facilities have been started by different donors in different countries, with varying results. Unfortunately, the fragmented nature of the various RBF approaches has often resulted in insufficient capital, a slow pace of capital deployment and an absence of standardized criteria for approval, resulting in an extra burden on mini-grid and household solar companies providing last-mile energy services.
To overcome these issues, a group of funders have come together to support the creation of a Universal Energy Facility (UEF) — a multi-donor RBF facility that will provide incentive payments to companies that deploy energy solutions and provide verified end-user energy connections to significantly speed up and scale up energy access across Africa.
The UEF, which will be rolled out later this year, is managed by SEforALL, and already has support from The Rockefeller Foundation, Shell Foundation, Power Africa, Good Energies, UK Aid, Carbon Trust, and Africa Minigrid Developers Association. By 2023, it aspires to be a USD 500 million facility and to deliver about 2.3 million energy connections and 300,000 clean cooking solutions, with the potential for much more.
With the creation of the UEF, these partners hope to achieve the full potential of RBF that so many energy access stakeholders have already recognized. By doing so, the UEF will be a key supporter to Africa’s off-grid sector for years to come.
Ruchi Soni is a Programme Manager at SEforALL.