Making Universal Access to Clean Energy Affordable, One Household at a Time
More than a billion people have gained access to electricity since 2010. Yet, there are still 733 million people without stable electricity supply, half of whom reside in rural and remote regions, often affected by conflict and in a state of fragility.
The electrification progress is highly uneven across the countries and regions of the world. Any improvement has been driven by countries in the Southern Asia and Eastern Africa regions. According to the 2022 tracking data for SDG 7, the access deficit is concentrated in Sub-Saharan Africa, with a high incidence in Nigeria, the Democratic Republic of Congo and Ethiopia.
In addition, the financial impact of COVID-19 has made basic electricity services more unaffordable for 90 million more people, a high percentage of whom reside in sub-Saharan Africa. This is a tremendous challenge because affordability, combined with access, quality, and reliability, is one of the key elements to accomplishing the targets for SDG 7.
Innovative financing is required to improve access to electricity for society’s most vulnerable and disadvantaged segments. Policymakers have observed that existing market incentives without adequately targeted interventions are insufficient for the private sector to extend solutions to portions of the population that are not considered a top priority due to location. Therefore, it is important to create the right incentives and implementation tools to help deliver electricity services and address affordability constraints for end-users.
The World Bank’s ESMAP launched the Financial Innovation for Energy Access (FIEA) program to address these affordability barriers. FIEA supports the developing and testing of financing instruments and implementation modes to drive energy access acceleration, inclusion, and impact across all electricity systems and solutions. It aims to do so in a way that provides additional financing instead of excluding or competing with private markets. In addition, the program seeks to address challenges related to the applicability of existing innovative structuring options and financing instruments to increase electricity access.
The program also explores how innovations in digital development and financial inclusion, consumer credit intelligence, and impact-linked finance can expand access to new users. FIEA supports the creative structuring of available financing tools and the piloting of new ones to reach low-income households, guiding capital toward countries affected by issues of fragility, conflict, and violence. There is a strong focus on countries that do not attract sufficient capital investment from private companies because of the state of their market.
FIEA supports developing countries through a variety of initiatives. Some examples include:
- Knowledge Creation and Dissemination: FIEA contributes to the body of knowledge on applying innovative financing instruments for electricity access and compiles lessons learned from the World Bank, IFC, private funds, and external agencies.
- Technical Assistance and Grant Financing: FIEA offers technical assistance and piloting through grant funding to World Bank teams focused on the electrification of developing countries. Technical assistance and grant funding enable diagnostics, market intelligence, feasibility studies, fund structuring, and the development of a blueprint for testing and subsequent implementation.
- Introduction of Innovative Approaches: FIEA directly supports innovative financing pilot projects in developing countries to assess their viability scale-up potential.
The FIEA has launched several activities based on country demand and funding availability. Some examples are:
- Grants to projects in Kenya and Niger: The FIEA funding window awarded grants for projects in Kenya (US$75,000) and Niger (US$50,000) to support the preparation of a pilot design to explore how electricity demand can be increased among grid-connected customer segments with low consumption rates. One of the critical approaches in the design of the pilot includes the promotion and financing of electric appliances for grid-connected households and small businesses.
- Testing the Feasibility of Impact Bonds to Promote Off Grid Energy Access in Burundi and Liberia: Impact bonds are a form of results-based financing which enables investors to provide upfront capital for projects. The investment is then repaid based on the project’s outcomes. The FIEA team analyzed the application of impact bonds in markets that have attracted little investment in the off grid solar market. The assessment outcomes are expected to inform recommendations on design options for an impact-linked finance mechanism to attract investments in countries with underdeveloped off grid solar markets such as Burundi and Liberia. This effort was implemented in collaboration with the Acumen Fund.
- Introduction of digitalization and digital payment systems for electricity utilities: The FIEA team explore the digitalization of utilities by focusing on models to implement a digital payments solution for utility customers. This is expected to create efficiencies for both utilities and their customers by allowing them to save time and money and removing the barriers to scale. It is also expected to inform the next steps and further establish demand for technical assistance to country teams that face hurdles with the management of utility payments.
Lessons and future innovations in World Bank financing facilities: The FIEA team compiled a series of lessons learned that focused on the design of debt facilities and applying innovative risk mitigation instruments to unlock local debt finance to channel capital towards off grid solar projects. The team also considers case studies from financing facilities over ten years and recommends approaches and design structures that are both innovative and implementable and aligned with World Bank’s operational policies. This activity is supported by the World Bank’s Finance, Competitiveness, and Innovation (FCI) Global Practice.