Universal Energy Access is Within Reach — If the Sector Survives COVID-19: Here’s How Funders Can Help
At last month’s COP26 conference, global leaders and investors grappled with how to deliver universal energy access (SDG 7) and support a sector still struggling amid COVID-19’s economic fallout.
To achieve this ambitious goal by 2030, we must ensure that energy access companies not only survive the pandemic but have the resources to continue to expand access in low-income communities worldwide.
COVID-19’s Continued Impact on Energy Access
After nearly two years, the COVID-19 pandemic continues to wreak humanitarian and economic havoc, pushing people into poverty — sometimes even back into poverty — or making it impossible for them to find a pathway to a better life. The rise of new variants and limited vaccine uptake and access (particularly in the Global South) means the pandemic will continue for the foreseeable future, stalling progress on the Sustainable Development Goals.
Pre-pandemic, the energy access sector was booming: Over the last decade off-grid energy companies delivered clean, renewable and affordable power to 470 million people, creating 370,000 jobs and avoiding 74 million metric tons of greenhouse gas emissions. Investment had increased six-fold between 2012 and 2017 alone. Yet even with the growth of the sector, energy access companies were operating on razor-thin margins in tough markets.
Today, that progress has slowed significantly, particularly in sub-Saharan Africa and South Asia. In the early stages of COVID-19 the problem was supply chain issues, lockdowns and stock outages that created logistical challenges for energy access companies and threatened customers’ access.
In the nearly two years since, the challenges have only multiplied. The trifecta of dwindling equity investment, decreased customer income and a dramatic increase in the cost of materials (and hence the cost of goods sold to consumers) has created a crisis for energy access companies, explained PEG Africa’s CEO Hugh Whalan during a recent interview with Acumen about how companies like his are faring in the aftermath of COVID-19. His insights were focused on PEG’s experiences, but the challenges he described are common across the industry. A recent (privately published) analysis by Social Investment Managers and Advisors (SIMA) found that 77% of energy access companies applying for relief funding from the Energy Access Relief Fund (including more than 500 companies from 50 countries) required this financing to continue operations, keep staff and provide ongoing access to their customers.
A New Fund Highlights The Road to Recovery
The Energy Access Relief Fund (EARF) was created to correct this market failure. After achieving a first close of $68 million in September, it offers energy access companies in sub-Saharan Africa and South Asia low-interest loans and liquidity, helping to stabilize the sector and protect the critical progress that has been made in the last decade. With a target of $80 million, EARF aims to support 90 at-risk energy access companies, keeping the lights on for more than 22 million people. Convened by Acumen and managed by SIMA, it is a powerful example of how governments, private investors and foundations can come together to center the needs of low-income communities and respond to a crisis. This effort provides a blueprint for other investors, and stabilizing the sector is just the beginning.
We must not allow COVID-19 to stymie moves towards universal energy access while at the same time pushing low-income countries further from a zero-carbon future. The United Nations continues to press countries to reduce their greenhouse gas emissions – and avoid a future climate catastrophe – by making the planet carbon neutral by 2050. With recent indications that current national climate plans will still lead us to a 2.7C rise by the end of the century, it is crucial that emerging economies do not adopt the high-carbon development pathways of the past.
That is why the world’s largest climate fund, the Green Climate Fund (GCF), is the biggest contributor to EARF, providing $30 million in an equity investment. GCF’s investment is intended to ensure that the continued rollout of universal energy is founded on innovative and sustainable technology. GCF sees EARF as a crucial tool to build back better from the ravages of COVID-19 while embedding climate solutions in recovery measures.
A major focus of COP26 was to strengthen current trends of emissions reduction by spurring countries to enhance their climate action. Investors and policymakers at the conference must double down on their pledges to deliver energy access and ensure that the clean energy transformation is not limited to the wealthy but is truly a transformation for all. The energy access sector has demonstrated the ability to leap-frog carbon-based pathways, and we must extend these solutions to the world’s poorest people and hardest-to-reach markets.
Universal energy access is within reach if we act now. Every day we wait is a wasted opportunity that further undermines the progress that’s been made, increases environmental damage and leaves millions in the dark. “Don’t get scared of the first exogenous shock to hit the off-grid sector,” Whalan cautioned. “Remember what you’ve built over 10 years and commit to seeing it through.” We could not agree more. We have the resources to sustainably power the world if only we light the path together. Step one is increased equity funding for energy access companies serving low-income communities.
Photo courtesy of IMF Photo/Lisa Marie David.