Initiative: Access to Sustainable Energy

Background

The energy initiative, which will be launched with the African Development Bank, will stimulate and expand the emerging energy market in Africa for SMEs, both as producers, distributors, suppliers and consumers of climate-friendly energy. It will build upon positive experiences with decentralised and renewable energy systems in Africa, where technologies are becoming increasingly reliable, affordable and profitable.

Objective

The objective is increased production of and access to sustainable energy services, primarily in rural and peri-urban communities, through a market-based approach. This will help accelerate economic growth, job creation and entrepreneurship in SMEs.

A high participation of women entrepreneurs is expected. In addition, the work load and health hazards for women and children related to the use of wood for cooking fuel will be reduced.

The long-term target is a significant increase in the number of businesses, institutions and households with improved access to and more efficient use of both modern and traditional forms of energy. A quantitative target will be established on the basis of the indicative budget.

Strategic approach

The initiative applies an innovative, private sector approach to providing access to energy services, based on local and sustainable energy resources.

Among the key features of this approach are:

• Focus on economic growth, business innovation and job creation through the involvement of SMEs in the provision of energy services, as well as on adding value through productive use of energy
• Stimulating the local energy market, e. g. through support to enabling frameworks and a dialogue between energy producers and energy consumers at the local level (producer-consumer dialogue)
• Involvement of financial institutions and investors to help reduce both real and perceived risks and thus increase access to financing
• Implementation through African institutions to strengthen ownership, build capacity and ensure sustainability

Apart from delivering on the ground, the initiative will contribute to political objectives at different levels, including national development policies and plans, the priorities of the African Union and the Regional Economic Communities, the Africa-EU Energy Partnership, and the UN Framework Convention on Climate Change. The initiative contributes to policy discussions and specific actions within the Africa-EU Energy Partnership and is open to other development partners, including the private sector.

The initiative will be designed as a set of national projects, building on national policies and strategies and implemented in alignment with government, civil society and private sector institutions.

This approach will maintain the continental scope of the initiative while at the same time ensure ownership and alignment to national priorities. Activities will be tailored to the specific circumstances of each country/area of intervention.

Action will be based on best practice and experiences from Africa and abroad. A phased approach may have to be applied, to ensure that the appropriate capacity and frameworks are in place prior to specific investments.

The initiative will be launched in three to five countries. Among specific criteria for selection of start-up countries are:

• A political commitment to improve sustainable energy access and facilitate private sector/ SME participation in the energy sector
• A business/SME community with interest in providing energy services to under-served areas
• Financial institutions that can be a channel for providing financial resources for decentralised energy investment by SMEs
• Energy resource centres, or other institutions, that can help build the capacity of local actors and provide policy input
• Options for partnerships with national, bilateral and multilateral organisations and institutions for mobilising additional financing from local and international sources

Activities

The energy initiative will strengthen the market for decentralised, renewable energy solutions by taking action in three areas: Policy advice/advocacy, capacity development and investment.

Policy advice/advocacy

Support governments to strengthen the market for decentralised and renewable  energy systems, e. g. through appropriate policies, regulatory frameworks and incentives. This can comprise:

• Enabling private production, distribution and sale of electricity, e. g. on a local grid. This can include micro-deregulation to reduce the administrative burden on sustainable energy SMEs
• Facilitating grid connection of decentralised electricity production based e. g. on hydro, wind or biomass, including power purchase agreements and feed-in tariffs
• Sharing of knowledge and successful practices among African countries, regional organisations and other stakeholders to allow testing and verification of various policy options
• Active outreach via printed and electronic media, at the local, national and regional levels

Besides stimulating the market for decentralised energy services, these actions will contribute to good governance in the energy sector.

Capacity development

Help local stakeholders to identify capacity development needs as well as formulate and implement plans. This can include:

• Stimulate the energy market at the local level in collaboration with local authorities, the local business community, community-based organisations and civil society. This can include creating awareness among consumers on the potential benefits of improved energy access and more efficient use of energy
• Strengthen SMEs through technical and management training as well as expert assistance to develop “bankable” investment projects, including sustainable revenue collection and operational/maintenance systems, and improve access to know-how, technologies, technology transfer, markets and potential external business partners
• Strengthen financial institutions’ ability to: Appraise decentralised energy projects; increase their knowledge of the energy business; and create incentives for increased financing of decentralised energy production, distribution and consumption. This includes bundling smaller projects into larger projects that can be financed by larger banks
• Facilitate public-private partnerships in energy service delivery, e. g. through concessions, service contracts and the like

Investment

Facilitate financing of decentralised energy investment projects by SMEs and by e. g. local authorities, where SMEs play an important role in implementation. The modalities for the investment support will be tailored to the beneficiary country and developed in close collaboration with national financial institutions, such as banks, agricultural credit organisations or rural energy funds. They might comprise:

• Credit lines
• Guarantee schemes
• Softloans
• Equity

Grant money will be used primarily to reduce risks, leverage additional investment and ensure affordability. Options for financing from the Clean Development Mechanism, and instruments under a post-COP15 climate-funding architecture, will be considered as part of the financing package.

Expected output

An overall target for the initiative will be established on the basis of the indicative budget. In each of the beneficiary countries the initiative will, as part of a country action plan, establish specific targets and indicators for measuring output and achievements. The indicators include:

• Number of businesses, households, schools, health centres and other consumers with improved energy access
• Number of enterprises and entrepreneurs active in energy service provision from decentralised energy sources, including installation, operation and maintenance. The indicators will be gender-specific
• Number of enterprises and entrepreneurs that have added value to their products due to improved access to energy. The indicators will be gender-specific
• Number of jobs created, including for young and female employees, in energy provision and productive end-use

Setup (management and organisation)

A small steering group or advisory committee, comprising the right mix of expertise from the private and public sector, will guide the overall implementation of the initiative.

In each country, the initiative will be managed by a relevant institution – or set of institutions – with a view to ensuring aid effectiveness. This could, e. g. be a national or regional energy resource centre.

The investment support will be channeled from the implementing institution through financial institutions, such as banks, rural credit organisations, rural energy funds and the like.

A national reference group with representatives from government, targeted SME associations, civil society and key development partners could be established to guide national implementation, to ensure coherence and to exploit synergies with other initiatives, e. g. by other development partners, development financing institutions and the private sector.

Overall budget

An indicative budget for implementing the initiative over five years, starting up in three to five countries and including additional countries after two years, would be USD 150-200 million.