Boosting The Financing Of Local Distributed Renewable Energy Actors In Africa — Oil Change International Shows How It Can Be Done

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The press release below comes at a an interesting time, when questions arise around how the electric infrastructure will actually pan out on the African continent. Last week I gave you the example of the excruciatingly long time a rural elementary school in Zambia has to wait to be electrified.

The lack of sensible priority is staggering, or so it seems. Thing are happening exponentially, and even though we have seen the flat end of the curve for a long time, don’t be fooled by the nature of exponential growth. Africa will prevail big time in the areas of energy and communication.

But unlike giant energy projects such as the wind farm at Lake Turkana, Kenya that came online in 2018 that seem kind of slow and not funded by local actors, distributed renewable energy generation will surely come out on top in the long run, not least because local communities will be in charge, but they need more finances to kick start this revolution for real. The very popular small “pay-as-you-go” systems shows the enormous potential, but who benefits financially in the end?

The organization Oil Change International has just released a report on the issue, and right here I will summarize 8 key recommendations from the report, and after that you will find the full text of their press release of July 21st, 2020.

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Report Summary

Renewable energy produced through off-grid and mini-grid wind and solar installations – called distributed renewable energy – has consistently been identified as the most effective, affordable, and resilient way to deliver electricity services to rural areas without access. However, only about 1-2% of financing for electricity in Africa is currently flowing to distributed renewable energy.

Of this, the vast majority has been for multinational companies that are based in Europe or North America or led by entrepreneurs from these regions, meaning profits are largely not remaining in Africa.

In order to reach universal energy access before the 2030 target set by the UN Sustainable Development Goals, international public finance institutions have an urgent responsibility to provide more funding and better financial transparency and tracking for distributed renewable energy. But they also have a responsibility to foster local participation in and ownership of distributed renewable energy initiatives. This briefing provides recommendations for how international finance institutions can fulfill this responsibility.

Recommendation 1:

To build capacity in local financial institutions for distributed renewable energy lending, international institutions should support programs that pair experts in the sector with local banks for periods of six months or more to conduct demonstration transactions, set up systems, and train staff in how to assess risk and opportunity in the sector.

Recommendation 2:

Design early-stage finance for distributed renewable energy companies to have grant-to-debt sequencing and reporting requirements aimed at strengthening internal processes.

Recommendation 3:

A particularly important kind of de-risking that international financial institutions are well positioned to support is the establishment of catalytic first-loss capital – particularly through first-loss guarantees for local financial institutions.

Recommendation 4:

There is a need for a forum for discussion between international public finance institutions, local banks, and distributed renewable energy enterprises to improve design of guarantee facilities.

Recommendation 5:

In addition to enabling lower-risk mechanisms for lending, there is a need for international public finance institutions to provide grant and concessional finance targeted at feasibility studies, the development of standardized metrics on the sector, and advisory services for project preparation.

Recommendation 6:

International public finance institutions should dedicate more resources to communicating and coordinating their work on distributed renewable energy for energy access, both with each other as well as internally between related sectors like agriculture and water.

Recommendation 7:

Governments and international institutions providing policy and technical assistance to governments should support the domestic provision of at least equal support for off-grid and mini-grid solutions as for grid extension.

Recommendation 8:

International public finance can play a catalyzing role by providing concessional finance and grants towards the up-front costs for non-profit mini-grid initiatives.

Press Release:

Expert Contacts:
Thuli Makama, thuli [at] priceofoil.org
Bronwen Tucker, bronwen [at] priceofoil.org, +1-587-926-7601

Communications Contacts:
Aneesa Khan, aneesa [at] priceofoil.org

Briefing: Overseas players should not dominate distributed renewable
energy sector in Africa

New briefing highlights the need for public finance institutions to prioritize local ownership of off- grid and mini-grid renewable energy initiatives

To view or download the full briefing: http://priceofoil.org/distributed-renewable-2020

WASHINGTON, D.C. – A new briefing released by Oil Change International details how the growth of distributed renewable energy in Africa has so far failed to include locally-owned companies and initiatives. The sector has been growing rapidly since 2013 – especially for companies focused on “pay-as-you-go” solar home systems — but finance has overwhelmingly only been accessible for multinational companies that are based in Europe or North America or led by entrepreneurs from these regions, meaning profits are largely not remaining in Africa.

“As governments and public finance institutions around the world prepare historic stimulus packages in response to COVID-19, we have an important opportunity to grow distributed renewable energy in Africa,” said Thuli Makama, Senior Advisor at Oil Change International, “But we need this funding to help start locally owned renewable energy initiatives instead of just flowing to a handful of overseas companies.”

“Mini-grid and off-grid renewable energy is more cost effective and resilient than both grid-based renewable energy and off-grid fossil fuels,” said Bronwen Tucker, Research Analyst at Oil Change International, “Growing a locally owned distributed renewable energy economy is more important than ever. The pandemic has laid bare the need to build energy systems that are resilient to future crises, including the global market shocks and natural disasters we can expect to see intensify as climate impacts escalate.”

The briefing, Distributed Funds for Distributed Renewable Energy, also includes data showing international public finance for projects in Africa has overall been dramatically misaligned with energy access and climate change priorities. Only about 1-2% of international public finance for energy has gone to energy access for distributed renewable energy since 2014, and fossil fuels received more than 3.5 times the support than all kinds of renewable energy did from 2016 to 2018.

In addition to echoing long standing calls for international public finance institutions like multilateral development banks and development finance institutions to stop funding fossils and invest in renewables for energy access, the briefing outlines three new areas of recommendations for how these institutions can support the growth of locally owned distributed renewable energy initiatives:

1) Supporting the entry of local finance institutions into the distributed renewable energy sector,
2) Facilitating coordination, research and planning between international public finance institutions, local banks, and distributed renewable energy providers, and
3) Increasing overall support for distributed renewable energy, with an emphasis on community-owned and cooperative models.

The briefing, titled “Distributed Funds for Distributed Renewable Energy: Ensuring African Energy Access Finance Reaches Local Actors”, can be found here: http://priceofoil.org/distributed-renewable-2020.

Oil Change International is a research, communication, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.

Notes: A June 2020 analysis by the World Resources Institute also emphasized the issue of finance for distributed solar overwhelmingly flowing to North American and European companies, and made recommendations for impact investors in the private sector.