Rethinking Finance in Renewables: A Case for Distributed Energy


Posted By:

Kai Vogt

In the run up to the launch event of Practical Action’s latest Poor People’s Energy Outlook report (PPEO 2017) we highlight some of the report’s main findings.

Since the UN declared the ‘International Year of Sustainable Energy’ in 2012, there has been an undeniable growth in favour of more sustainable sources of power across the world. From 2012-2014 however, the number of people living without electricity fell by a marginal amount, and in Sub-Saharan Africa this number actually rose due to population growth. As a result, there are still over 1 billion people in the world without access to electricity and a further 3 billion relying on traditional polluting and expensive fuels.

These are just some of the findings which Practical Action – a UK based charity which uses appropriate technologies to fight against poverty in the developing world – is set to release.

Launched in 2010, the annual report has come to be heavily influential in the energy access debate thanks to its comprehensive methodology which focuses on the needs and perspectives of the energy poor as its starting point.

Last year’s edition focused on the planning and policy framework for delivering energy, and using PA’s Total Energy Access approach they developed a least-cost energy access plan with 12 communities on the ground in three countries: Kenya, Togo and Bangladesh.

Building on these findings, the PPEO 2017 sees the same approach scaled up to the national level to build a detailed snapshot of the energy situation in each country to deliver universal access at the lowest cost. Finance having fast become a central tenet of the debate on energy access – a top priority on the COP23 agenda this year – Practical Action’s report could not have come at a better time.

A solar installation from 2015 winner SteamaCo

Eponymously arguing for a bottom-up approach to energy financing, the report examines some of the challenges faced by actors and stakeholders in delivering energy access to last-mile communities and generates a national finance estimate. This figure in turn is measured against the willingness of local communities to pay for electricity and gives an idea of the financing gap for each country project.

Whilst investments for national energy systems have generally been on the rise in recent years, it is widely acknowledged that this new financing is not nearly sufficient – nor is it flowing in the right direction to meet the goal of universal clean energy access by 2030.

The International Energy Agency estimates that $49bn/year is needed over a 20-year period to achieve universal energy coverage (2012) – a variable figure depending on a range of metrics including the efficiency of appliances and the level (tier) of energy provided. Variables aside however, the finance gap is undeniable: in 2013, a total of $13.1bn was invested in energy access, much of it confined to a select few countries.

There is also a clear division in favour of electricity, which attracted 97% of the cash flow, over clean cooking which received a meagre 3%. The report argues for a more holistic approach to energy provision which would take both aspects as two sides of the same sustainable energy coin.

Jikokoa stove from Burn Manufacturing

The provision of electricity has thus far focused overwhelmingly on the more traditional methods of grid extension and increase in generation capacity, but the report’s findings suggest that the least cost solution for reaching the poorest communities would be distributed energy systems made up of standalone mini-grids.

The results were conclusive: the most appropriate, economical, reliable, and expedient technologies in almost all cases were distributed energy systems – not traditional, centralized energy infrastructure.

Poor People’s Energy Outlook Report 2017

The sector for distributed energy is growing however, and in Africa it has expanded 10-fold since 2005 – now serving around 60million Africans or 10% of the off-grid population. Finance for distributed energy has grown in tandem and last year reached $223million in compared to $3million just 5 years ago, raising concerns amongst some that this is a potentially unstable ‘energy bubble’ waiting to pop.

Despite these encouraging trends, the report has further highlighted the existence of a massive shortfall in the necessary finance for energy access plans estimated to be around $39bn a year – of which $11bn should go to improving the grid, $19.5bn to distributed energy systems serving the poorest communities and finally $3.5bn to spreading cleaner cooking technologies and appropriate fuels.

Whilst this figure may seem unlikely – if not impossible, there is clearly a huge opportunity for growth in the distributed energy sector as the energy poor already spend around $27bn a year on lighting and mobile phone charging alone, not to mention cooking fuels which can drain up to a third of poor families’ income.

What’s needed now is the removal of barriers to investment in the form of upfront costs. As those most in need are largely situated in pre-commercial markets, it is unlikely that private actors alone will be able or willing to foot the bill for such large-scale electrification projects.

A Solar Kiosk powered by SteamaCo

Facing up to this challenge will require the collaboration of multiple actors and stakeholders in the sector, calling on public, private and civil society groups to play their role – both jointly and separately – in achieving universal energy access. It’s time to reject the ‘one-size fits all’ model in favour of a more coherent approach in line with the needs and wants of the poor, as well as an appropriate mix of technologies relevant to individual contexts and local circumstances.

The 2017 edition of the ‘Poor People’s Energy Outlook’ will be launched officially on Thursday 19th of October at the Ashden offices under the title: “Financing national energy access: a bottom up approach”. The 2018 edition will conclude the three-part series with a review of how to achieve universal energy access in practice, drawing on a range of experiences on the ground.

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