NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Access to modern, reliable and affordable energy is critical for economic development and poverty alleviation globally. Yet according to IRENA’s “Tracking SDG7: The Energy Progress Report 2023,” as of 2021, 675 million people still lacked access to electricity. Of those, 567 million people lived in sub-Saharan Africa — which means the region accounted for over 80% of the global population without energy access. Additionally, the report found that 2.3 billion people lacked access to clean cooking, primarily in sub-Saharan Africa and Asia. That means, given the current rate of progress, 660 million people will still lack access to electricity in 2030, and 1.9 billion people will still be using polluting cooking fuels.

Bridging this “energy access gap” in an equitable, sustainable manner is a global imperative.

However, achieving universal energy access by 2030, a key target under Sustainable Development Goal (SDG) 7, will require massive increases in investments — particularly when climate and renewability goals are added to the mix. According to IRENA and Climate Policy Initiative’s report, “Global Landscape of Renewable Energy Finance 2023,” though renewable energy investment reached a record high in 2022, this funding still amounted to less than one-third of the average yearly investment needed to limit global temperature increases.

To address this gap, private sector participation and innovative business models will be instrumental in mobilizing finance at scale and ensuring commercially viable and sustainable delivery models. And startups and small-and-medium enterprises (SMEs) can play a crucial role in advancing clean energy access for underserved populations.

But startups and SMEs focused on decentralized renewable energy access face multiple barriers throughout all stages of their evolution, from ideation to commercial viability and scale-up. These barriers range from the limited availability of risk capital to weak regulatory environments and underdeveloped value chains. To help them better navigate these challenges, there’s a growing need for enterprise support and technical and business advisory services that cater to their unique needs.

The Need for Holistic Enterprise Support and Advisory Services for Energy SMEs

Enterprise support and technical and business advisory services aim to help startups and SMEs succeed and grow through specialized guidance and various initiatives, which include incubation and acceleration programs, funding and investment opportunities, networking and collaboration facilitation, and training and capacity building. Technical and business advisory services provide targeted assistance in areas such as business planning and strategy, financial management, legal and regulatory compliance, human resource management, marketing and sales, technology and innovation, and operations and supply chain management. These services are offered by government agencies, business associations, consulting firms, academic institutions and experienced mentors, with the goal of empowering startups and SMEs with the necessary knowledge, resources and guidance to overcome challenges, seize opportunities and achieve sustainable growth. While some enterprise support programs and advisory services led by development partners and impact investors exist, they are often designed as short-term interventions focused on discrete company-level objectives. What is needed is a more holistic and long-term approach centered around nurturing inclusive innovation ecosystems and sustainable commercial pathways for SMEs in the energy sector.

A report by The Energy For Growth Hub on “Who is Driving Africa’s Energy Future,” released in November 2023, provides key insights into why strengthening local capacities is essential for sustainable energy planning in sub-Saharan Africa. Though the report is focused on the nexus of energy systems analysis, modeling and policy, many of its findings apply to efforts to ramp up enterprise support and advisory services for energy access as well. In particular, it highlights the need for: flexible, long-term and adaptive funding that empowers local businesses and other actors; greater availability of granular data; and more independent local expertise anchored within stable enterprise support organizations. These findings underscore not only the need for more support for local energy SMEs, but also the importance of taking a more ecosystem-based approach when providing this support — one that coordinates the diverse actors, capabilities and incentives in a particular locale.

Five Principles for Reimagining Enterprise Advisory Support for Energy SMEs

In reimagining enterprise advisory support for SMEs that are advancing energy access, there are five principles that are important to consider. This support should:

1. Provide core funding for local energy access incubators and accelerators based in target geographies, to promote experimentation and innovation. This type of flexible funding will allow these intermediaries to offer a wide range of services spanning idea-stage grants to rigorous acceleration programs — without restrictive project budgets. It will also enable them to provide sustained, multi-year support that accounts for the long gestation periods of early-stage ventures. By providing this support for incubators and accelerators rooted in local contexts, this funding will enable them to serve as convergence points for diverse actors, while boosting the credibility of their interventions within the entrepreneur community.

2. Embed specialized talent within incubators, accelerators and other enterprise support organizations, to provide bespoke and high-touch advisory services that span technology, policy, financing, partnerships and more. These in-house, full-time advisors will be able to provide deeper, company-level engagements tailored to the specific needs and evolution phases of the venture. This type of specialized support is scarce in many emerging market geographies, and it supplements broader ecosystem strengthening. These advisors will also: provide entrepreneurs with access to networks of experts; facilitate partnerships with government agencies; connect these businesses with pilot opportunities; and help them navigate local dynamics to unlock ecosystem leverage by accessing the resources, guidance and connections necessary for their growth and success.

3. Foster sustained partnerships between entrepreneurs, industry players, investors, government agencies and academic/research institutions. Structured partnerships via programs, events and communication channels can incentivize collaboration between actors that typically operate in silos. These partnerships will build symbiotic relationships between small and large firms, while also enhancing applied research, demonstrating the commercial viability of innovations, and co-creating regulatory frameworks attuned to the local context.

4. Support platforms for symbiotic collaboration between small and large firms, to overcome the asymmetry of capabilities and resources that exists between these companies. Structured corporate partnerships will allow small firms to leverage their larger partners’ expertise in technology integration, process optimization, marketing, distribution and after-sales capabilities. Corporations will also benefit, gaining visibility into SMEs’ innovative business models and accessing their entrepreneurial talent to expand the corporation’s services to underserved market segments.

5. Create a performance-driven ecosystem that incentivizes SMEs to focus on delivering tangible and measurable outcomes in advancing clean energy access for underserved communities, rather than defining success based on narrow company-level metrics. Adopting an end-beneficiary-centric framework will shift the focus away from tropes like “number of innovations/entrepreneurs supported,” to instead prioritize real-world development impact. Tracking SMEs’ progress based on the improvements they make in local energy access will create accountability for these businesses, their intermediaries and their funders alike.

The path to mobilizing commercial solutions at scale for energy-poor populations involves coordinating public and private capital to nurture inclusive regional energy access ecosystems. Enterprise support and advisory efforts can play a key role in the development of these ecosystems, helping to align the incentives of diverse actors under this shared purpose of impact, while providing them with the flexibility to adapt to evolving bottlenecks and opportunities. It’s time for these vital players in the energy access sector to receive greater support.

Godfrey Simiyu Katiambo is Senior Regional Advisor – Energy Access at Mercy Corps Energy4Impact.

Photo credit: Stéphane Bellerose/UNDP Climate.