The Growing Urgency of Funding Off-Grid Solar: Exploring the Multi-Billion Dollar Investment Opportunity in Achieving Climate and Energy Access Goals
In the last decade, the off-grid solar industry has become a key solution to quickly deliver clean energy access to low-income and hard-to-reach communities. It currently serves 420 million people and has helped mitigate over 150 million metric tonnes of CO2e (according to GOGLA estimates), while enabling remote and vulnerable populations to adapt and become more resilient to climate change.
However, financial flows into the sector have stalled over the last five years, and it is not receiving anywhere near the funding it would need to fulfill its potential and make a life-changing contribution to universal energy access and climate goals. International climate funding could be a part of the solution, but there’s work to be done to leverage it for the industry.
The article below will explore the momentum and potential of off-grid solar, discussing why much faster progress – and much greater funding – is needed for the sector to address the increasingly urgent challenges of climate change.
Climate urgency can push energy access forward
We need to act quickly to avoid the worst consequences of climate change. That much was confirmed at last year’s COP26 climate summit. It is also clear that climate change is already happening, and its consequences will disproportionately affect the people who have least contributed to it – poor people in low-income countries. These people, in many cases, have no electricity or a weak grid connection. Their livelihoods often depend on their ability to navigate increasingly unpredictable weather conditions. They are generally vulnerable to natural disasters and have limited capacity to absorb setbacks.
A “fair and just transition” to an environmentally sustainable economy was a key theme at COP26, acknowledging that energy access and climate goals can work hand in hand, and that the world’s most vulnerable cannot be left behind in the green energy transition. We absolutely must reduce emissions, and urgently. But it is also important to avoid future emissions, and for growth in low-income economies to be green, using climate-smart technologies and approaches.
The climate reality also calls for boosting resilience and adaptive capacity, specifically for low-income people, to avoid quickly losing the hard-won development impacts of recent years. An estimated 97 million people were pushed into extreme poverty in 2020 due to the COVID-19 crisis and lockdown measures. With natural disasters foreseen to become more frequent and severe due to climate change, there is a real risk of future backslides many times bigger than the one caused by the pandemic.
Off-grid solar has a pivotal role to play in this space. It is at the same time a climate-smart solution that helps create jobs and economic opportunity, and a critical component in making low-income and rural communities more resilient to shocks and better-adapted to changing climate circumstances. As UNDP Administrator Achim Steiner said in his opening remarks at the recent Global Off-Grid Solar Finance Summit, “Solar power is now the cheapest source of electricity in history. The challenge is to ensure that some of the world’s most marginalised communities gain access to this clean, renewable and affordable source of energy. It will drive down carbon emissions and bring dignity and opportunity for millions of people.”
Momentum building in energy access
COP26 was a big moment in the past year for the energy access sector. The other one was the UN High-Level Dialogues, where SEforALL launched the Energy Compacts initiative. Energy Compacts are voluntary commitments to SDG7 and energy transitions, made by UN Member States and other stakeholders, establishing specific, trackable actions to advance progress on SDG7 and net-zero emissions. The financial commitments articulated in all the Compacts combined will amount to an investment of US $600 billion into achieving SDG7’s goal of sustainable energy for all.
The Green Climate Fund, the largest global fund dedicated to fighting climate change, is also supporting several important initiatives in the off-grid solar sector, including the Energy Access Relief Fund and KawiSafi Ventures. Additional announcements and financial commitments at COP26 recognizing that we must pair climate and energy access, two of the biggest challenges the world is facing, were encouraging.
However, it is important to realize that much of this funding will not be immediately available to help drive off-grid solar solutions, as it simply takes too long to be mobilized, or does not come in forms and on terms that really help off-grid solar businesses to play their most optimal role in delivering public impacts.
Going from commitments to climate action
So while more people are talking about clean energy access and there’s definitely momentum that is building, today the biggest obstacle to achieving SDG7 still remains insufficient finance for energy access, at the required scale and on appropriate terms. The off-grid solar sector needs to focus on how to deliver the necessary green transition by ensuring that the available financial flows arrive at scale, locally and faster.
As a sector, we need more financing of all types, including public funding, in the form of initiatives that help to de-risk investment and leverage more private finance. Support programs that help make our products and services affordable to everyone, everywhere, are also necessary.
To that end, one interesting initiative that could be catalytic is the Leveraging Energy Access Finance Framework (LEAF) blended finance programme, in which the African Development Bank and the Green Climate Fund are cooperating to address the financing barriers that prevent capital flows to the off-grid sector. This model should facilitate investment at scale, and hopefully many more such innovative partnerships will emerge soon.
Another challenge the off-grid sector is facing in its efforts to connect with climate financiers is a lack of transparency on aspects of energy companies’ performance that are critical to these investors. GOGLA’s PAYGo Perform, Consumer Protection Code and Circularity activities are aimed at helping these companies improve their financial and impact performance, which is critical when trying to attract investments.
The sector needs to find a way to tell its story compellingly, highlighting the fact that there will be profits in the long term, along with other positive human and climate impacts, and those future profits and impact should play a more important role in the narrative. The industry also needs to connect with all its stakeholders, which include governments, investors and development partners, and to improve in how it measures the impact it has on climate adaptation and resilience. These changes can be difficult to execute, but they are key to bringing future profits forward and communicating the long-term gains and benefits off-grid solar creates.
Additionally, as new capital is brought into the sector, we need to create the environment for small, local enterprises to thrive, along with more established companies. Targeted capacity building, as well as early-stage finance and patient capital for this distinctive segment, are some of the key elements of this goal. Creating a pipeline and a deal flow of local companies is also critical to accomplishing SDG7 – and all the energy and climate-related SDGs.
Advocacy and deeper collaborations are key to moving forward
Governments in low-income countries can have a massive impact in creating the environment for off-grid solar companies to thrive – and to be able to provide energy access to the millions of people still living without it. They will also be recipients of energy and climate-focused funding, and have active roles in deciding how to distribute funds intended for both adaptation and recovery from loss and damage.
The philanthropic community is also increasingly involved in climate and energy access, as are financial institutions dedicated to supporting mitigation and adaptation. They all need to learn more about off-grid solar, and to recognise its critical role in achieving energy access, development and climate goals.
As part of GOGLA’s deepening collaboration with governments and development partners, we are also looking ahead at how we can contribute – for example, with productive use solutions in agriculture, or by helping farmers become less reliant on rain-fed agriculture. We know – but also must show – that off-grid solar energy is a great way to create jobs, build resilience, contribute to gender equality and reduce climate emissions.
The only way we can hope to achieve our aims is through partnerships, including new ways of cooperation between the public and private sectors. We are increasingly turning to all our stakeholders with a message of collaboration, so we can work even more closely together to bridge the gaps that still exist within the industry, in order to deliver life-changing, massive results and improve 1 billion lives by 2030. That is the spirit that inspired GOGLA to launch our Power 1 Billion Lives Energy Compact, in which we’ve made commitments of our own as part of SEforALL’s Energy Compacts initiative. We look forward to continuing our work in 2022, to prove both the life-changing potential of the sector – and the investment opportunity it offers.
Photo courtesy of BudapestBamako.
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