By Alexia Kelly, CEO of Electric Capital Management and co-chair of LEDS Global Partnership Finance Working Group.
Across Africa, India, and other regions of the Global South, there is an urgent need to mobilize funds into the distributed clean energy sector to provide access to clean, affordable, reliable energy for the 850 million people who live in energy poverty. Mobilizing these resources now is central to accelerating the decarbonization of the power sector, addressing and preparing for climate change impacts, and meeting UN Sustainable Development (SDGs) goals.
Leaders from across the globe met September 11-13th 2019 in CapeTown, South Africa, to discuss strategies to scale and accelerate investment into energy access and clean energy across Africa. It was an unprecedented gathering of faith leaders and faith-based investors, local African government representatives, capital managers, private companies, and non-profit and civil society leaders.
Here are five bold ideas that came out of this workshop for faith-based leaders, governments, and philanthropy that would enable significant scaling of capital flows to end energy poverty. This is the second part in a two part series sharing outcomes from the following event.
1. Energy Access Guarantee Facility
- WHAT: Develop energy access-specific guarantee and first-loss products that would enable energy access funds, entrepreneurs and local lending institutions to raise and deploy capital into high-risk energy access market segments and businesses at more affordable rates and better terms for implementers.
- WHY: Real and perceived risks associated with investment into the energy access market segment is a key barrier to scaling capital flows. Commonly cited risks include: unproven technology, underserved or unserved client segment, untested entrepreneurs, insufficient balance sheet capital and revenue, uncertain policy and regulatory environments, currency fluctuation, emerging market risk, new market segments, etc. Targeted risk mitigation instruments will be essential to unlocking capital at scale to end energy poverty.
2. Blended Capital Fund Accelerator
- WHAT: Develop an energy access fund accelerator with hubs in both the developed and developing worlds that provide tailored mentorship, early-stage funding, training in communications, and financial and legal structuring services for intermediary financing facilities addressing energy poverty in key markets for new market entrants (either first time fund managers or existing capital managers interested in expanding their scope to include energy access).
- WHY: Concessionary investment funds provide important diversification and risk mitigation for investors and, when properly managed, can significantly increase the scale of private capital available to mobilize into this market. However, very few funds have managed to raise blended capital for energy access applications over the past five years. This capability would help address many of the key gaps that investors have indicated are impeding investment into these vehicles.
3. Patient Debt Fund for Energy Access Projects and Entrepreneurs
- WHAT: Revolving debt facility administered on a non-profit basis to provide patient debt (10-20 year terms) for energy access projects and entrepreneurs at affordable rates (e.g. below 10% APR).
- WHY: High up-front capital expenditures, coupled with long, slow payback of those costs through energy purchases and equipment payments is a significant barrier to accessing debt capital for energy access businesses. Affordable debt for capital investment and business expansion will be critical to achieving scale in the energy access space.
4. Zero to One Fund
- WHAT: Grant fund that takes small risks on big ideas. The Zero to One Fund would provide early stage project capital to pilot and test innovative new business models and technologies in key markets for locally developed and incubated technologies and ideas.
- WHY: Very few grantors or investors will provide capital for untested and unproven ideas and local entrepreneurs and change makers struggle to access international capital. This fund would provide support for early stage testing and R&D for locally developed and applied technology and business model innovations targeting energy access solutions.
5. Energy Justice Fund
- WHAT: $100M fund that provides grants to community-based organizations, project developers and non-profits that are working to end energy poverty, with a special emphasis on developing country-led and women-owned and managed initiatives and organizations. This fund should grant in denominations as low as $20,000 and as high as $5M through a streamlined, efficient and light-touch application and management process.
- WHY: Access to grant capital to advance environmental justice and on-the-ground work for local partners is a key gap in the energy access arena and is significantly hampering the scale and speed of deploying proven approaches. Organizations working on place-based energy access solutions, grassroots organizing and enabling environment issues struggle to access capital so they can focus on their work and not fundraising.
Nearly 100 people participated in an all day workshop exploring how to scale investment in energy access and developing new partnerships across groups that don’t often have the opportunity to engage. The workshop was convened by the Low Emissions Development Strategies (LEDS) Global Partnership and the German Government’s International Climate Initiative Mobilising Private Investment project, GreenFaith, the Shine Campaign, and the Southern African Faith Communities’ Environment Institute (SAFCEI). During the workshop faith leaders met with energy access experts and other key stakeholders to explore ways that the faith sector can increase its engagement and support in this vital area and identify specific opportunities for collaboration.