Access to financing is a key constraint for sustainable private sector growth in the renewable off-grid energy sector in developing countries. The challenge is especially apparent in clean small scale rural electrification projects in remote areas of Africa, Asia and Latin America, where the upfront capital investment especially for advanced renewable energy technologies can be relatively high comparable to available funds of local households and enterprises
A growing and more differentiated supply tailored to local and investors’ conditions and easier access to funding and financing schemes are therefore vital for successful business ventures in the sector, and hence for striving towards universal clean energy access. These support the initial establishment of rural electrification projects and allow for risk management, while accounting for both downstream (consumer finance) and upstream financing (enterprise finance such as start-up capital, working capital, etc.)
As an example, financing programmes for renewable mini-grid energy systems, have to address three different levels to have a deep and sustainable effect in rural communities: end-user finance, which will allow consumers to connect to a mini-grid and acquire electric appliances; business finance for small enterprises that will deliver or operate an energy system; and project finance for the capital investment. Therefore, financing programmes need to rely on institutional capacities available locally, and must be able to work closely with these local players at the different stages of project development. (ARE, 2014)
Despite often existing challenges, holistic and commercially viable business models with successful financing schemes are being implemented by members of the Alliance for Rural Electrification (ARE) in a multitude of settings and countries. ARE has thus developed knowledge on best practices, and on funding and financing opportunities; knowledge which we discuss and refine with our members through rural electrification finance training sessions, workshops, weekly alerts, publications and the member section of our website. We also advise our members on concrete project implementation.
ARE supports its members through all stages of the financing process, helping them gain access to early financing, key market information, knowledge on sustainable business models, direct information on fund allocation as well as access to high level decision makers. Members hereby benefit from unique financing advantages, which can lead to concrete business opportunities and increased market access.
Examples of financing schemes
In July 2015, the OPEC Fund for International Development (OFID) provided ARE with a grant of US$ 990,000 for de-risking mechanisms for business ventures to facilitate the deployment of mini-grids for affordable and sustainable energy services in Bangladesh, India, Mali and Mozambique. The grant thus directly benefited not only several ARE members to grow their business, but even more importantly it will directly contribute to increase energy access for local off-grid populations: In Bangladesh, the installation of a hybrid-mini grid will benefit approximately 310 households (1,430 people). In India, the installation of 5 hybrid mini-grids will benefit 250 households, 25 productive users and 5 public buildings. In Blendio, in the Sikasso Region of southern Mali, a hybrid mini-grid will serve 300 households and 40 productive users. Finally, in Mozambique a PV/Biomass hybrid mini-grid will provide energy access to 900 households, 33 productive users and 3 community buildings.
ARE also cooperates with the UN, in particular with its global Sustainable Energy for All (SE4All) initiative. As SE4All’s only business association partner, ARE is one of the leaders of the SE4All HIO Clean Energy Mini-Grids and co-hosts its Secretariat together with the UN Foundation, thus enabling members to get in touch and develop projects
Furthermore, ARE has built up strong working relations with the European Commission (EC). Most recently, ARE assisted the EC in its consultation process to set up the Electrification Financing Initiative of Euro 75 Mio (ElectriFI), which since COP21 acts as a financing mechanism to support market development and private sector driven projects for affordable, sustainable, and reliable energy solutions in developing countries.
In addition, ARE is one of the main partners of the Africa-EU Renewable Energy Programme (RECP). Concretely, ARE supports the RECP Private Sector Cooperation and links its network to the various private sector services the RECP offers, such as helping project developers acquire financing for their projects.