"Over 620 million Africans do not have access to modern energy. The region’s energy deficit holds back the economic growth needed to create jobs and lift people out of poverty. Africa’s leaders have no choice but to bridge the energy gap, urgently." - Koffi Annan, Chair Africa Progress Panel
As introduced in the previous post, the main limiting factor for private companies in the energy sector, specifically emerging social enterprises is the lack of access to finance and the related business advisory services.
Starting with the latter, there is a massive gap in the market, where large consultancy firms are inaccessible to early and medium stage companies at market rate. Donor organizations should work with partners to promote and initialize more projects that offer business consultancy and potentially incubation to early stage clean energy companies. This would allow more small energy enterprises a better chance at providing services to those who desperately need them.
Starting with the latter, there is a massive gap in the market, where large consultancy firms are inaccessible to early and medium stage companies at market rate. Donor organizations should work with partners to promote and initialize more projects that offer business consultancy and potentially incubation to early stage clean energy companies. This would allow more small energy enterprises a better chance at providing services to those who desperately need them.
With respect to access to finance for clean energy Small and Medium Enterprises, commercial bank terms are punitive, grants are competitive and sometimes restrictive and the process and timescales involved suggest a business losing momentum in a fast-paced market. Research and Development funders are thin on the ground and though there are private investors flooding the market, most businesses will typically need initial financing and support to get investor ready. For these reasons, innovative funding models are required.
Ideas like repayable grants offer more flexibility with little to no interest and funding for securitization would reduce risks for commercial loans which would be a game-changer. An example is the SIDA funded Loan Guarantee Fund that sought to underwrite commercial loans to small scale entrepreneurs. Notwithstanding the mixed success in terms of administration and thus re-payment, there were definite examples of instances where the funds made the difference in the viability of a business. Donors should look to understand the optimum conditions for these types of funding structures, by analyzing previous projects and primary data. Through research they could identify where these types of innovative financing structures could have the most impact and channel more funds there to encourage development.
Ideas like repayable grants offer more flexibility with little to no interest and funding for securitization would reduce risks for commercial loans which would be a game-changer. An example is the SIDA funded Loan Guarantee Fund that sought to underwrite commercial loans to small scale entrepreneurs. Notwithstanding the mixed success in terms of administration and thus re-payment, there were definite examples of instances where the funds made the difference in the viability of a business. Donors should look to understand the optimum conditions for these types of funding structures, by analyzing previous projects and primary data. Through research they could identify where these types of innovative financing structures could have the most impact and channel more funds there to encourage development.
Finally, enabling government policy is crucial in stimulating more private sector actors. Many governments are rightly promoting entrepreneurship but this needs to extend beyond supporting small groups of youth and women. Let us take the example of mini-grids. There are indications that if an appropriate business model can be found, for example one that provides for lower tariffs to the poorest, then mini-grids have the potential to be life-changing.
The key is to attract enough players to enable a vibrant environment where potential solutions are quickly tested and competitive innovation encouraged. The Governments can help promote such an environment by addressing policy on grid-tie-in, net-metering, developing robust PPAs up to the inclusion and easing licensing and permitting requirements of small scale developers. Here, donors can also play a crucial role by leveraging expertise on advising governments and helping to shape policy towards the enabling environment. They could consider co-funding asset development, short term subsidies and performance based financing where appropriate.
The key is to attract enough players to enable a vibrant environment where potential solutions are quickly tested and competitive innovation encouraged. The Governments can help promote such an environment by addressing policy on grid-tie-in, net-metering, developing robust PPAs up to the inclusion and easing licensing and permitting requirements of small scale developers. Here, donors can also play a crucial role by leveraging expertise on advising governments and helping to shape policy towards the enabling environment. They could consider co-funding asset development, short term subsidies and performance based financing where appropriate.
Mobilizing the private sector may not seem like a radical approach and neither can it be applied universally in all contexts. However, the innovation comes in recognizing where and how we can shift the development implementation agenda towards a more commercially driven outlook that has proven sustainability.
Note: This is the final part of the guest post introduced in Part 1 by MAKENA IRERI an Engineer, Energy professional and blogger. The images used were downloaded from Google, image credits to the owners.
Note: This is the final part of the guest post introduced in Part 1 by MAKENA IRERI an Engineer, Energy professional and blogger. The images used were downloaded from Google, image credits to the owners.