Optimizing Results-Based Financing for Off-Grid Energy: Why Localization Can Provide a Pathway to More Effective Investment

Excerpt from nextbillion.net

The recent High-level Dialogue on Energy, the first U.N. gathering of world leaders in more than 40 years solely devoted to energy issues, highlighted the urgent need for action to achieve universal access to energy by 2030. With 770 million people lacking access to electricity – 75% of them in sub-Saharan Africa – the world is still far from achieving this goal. Fortunately, a path forward is emerging: According to the International Energy Agency, distributed renewable energy (DRE) solutions, like small-scale solar systems and mini-grids, are the least-expensive way to provide power to more than half of the world’s off-grid population.

But with investment volumes ranging from 259 million to 420 million over the past five years, the amount of funding to off-grid companies needs to grow at least twofold per year to achieve universal energy access by 2030. At least half of this funding will need to come from public and philanthropic subsidies, to unlock commercial finance and reach the poorest people.

Exciting new developments are underway to catalyse investments in distributed renewable energy, including a historic US $1 billion initiative launched by the IKEA Foundation and the Rockefeller Foundation in June – the single-largest DRE initiative to date. But more progress is needed. Below, we’ll explore the role results-based financing (RBF) can play in drawing more capital into the sector, and discuss why RBF approaches should have a strong focus on local stakeholders and innovators.