Targeting decentralised energy with international climate finance

Targeting decentralised energy with international climate finance

SNV and other development organisations have been saying this for a while, but now the call for climate finance to be better targeted towards small-scale decentralised energy has been reinforced by experts from a Dutch policy institute, the Netherlands Environmental Assessment Agency (PBL).

The recently published report “Towards universal electricity access in Sub-Saharan Africa” also states that the Dutch government and other donor countries should provide more market development support for off-grid energy solutions to contribute towards ensuring universal access to electricity. Development cooperation should help strengthen the enabling environment in developing countries to stimulate off-grid energy.

It’s encouraging to see experts advising our government coming to the same conclusion as the people who have been fighting poverty in many of the world’s poorest countries. The scale of the challenge needs all hands to the wheel, and hopefully this report will help to pull everyone together and step up support for decentralised energy market development. Decentralised electrification projects, including mini-grids and stand-alone systems for households, businesses and institutions, play a vital role in providing access to electricity for the millions of people living in remote areas.

In Sub-Saharan Africa, more than 600 million people do not have access to electricity. It is expected that without better policies, by 2030 between 350 and 600 million people will still not have access to electricity - mostly in rural areas. Expanding the grid to sparsely populated remote areas with low electricity demand is often more expensive than using decentralised systems.

In their report, PBL analyse the technology and investment required for achieving universal electricity access in Sub-Saharan Africa. The choice between grid-based or decentralised electrification systems depends on remoteness and how much electricity newly connected households are expected to use. The cost-effectiveness of mini-grids or stand-alone systems increases significantly in sparsely populated remote areas, with relatively low electricity demand. In addition, with the ever declining costs of renewable technologies, renewable systems will become the least costly option in more and more places.

Of course, significant investment is needed to achieve universal energy access, for both grid expansion and off-grid solutions, but finance is not the only barrier. We need to ensure a level playing field for new technologies such as renewable off-grid options, as currently established technologies mostly based on large-scale fossil fuel systems, often benefit from favourable laws, regulations, subsidies and tax incentives. This, in combination with uncertainty about future policies, results in private investors perceiving off-grid renewables as high risk options with low return on investment.

This can be solved by clear national energy development strategies which include the role of renewables, removal of unequal tax burdens and increased policy incentives for small-scale, decentralised technologies. The support for off-grid market development starts with the development of a long-term vision, an enabling environment and strengthened governance and institutions. To ensure that electricity reaches the poorest communities, in some cases innovative financial approaches may be needed. For example, targeted subsidies and credit schemes for the poorest electricity consumers.

Isn’t universal energy access bad for the climate? No! The PBL calculations show that the increase in CO2 emissions and therefore, the impact on the climate is negligible. Not only do the households connected for the first time – at least initially – have very low electricity consumption compared to the large polluters in the ‘western’ world, around half of the additional power production is expected to come from renewable energy sources.

The Dutch government renewed its target to provide renewable energy access to 50 million people by 2030, thereby contributing to the SDG 7 target of universal access to energy by the same year. The Dutch institute PBL sees that the added value of Dutch development cooperation lies in targeting international climate finance to decentralise solutions, support for off-grid market development, and helping national governments to strengthen their enabling environment for decentralised energy, through financing, capacity development and training.

Decentralised renewable energy offers the fastest and most affordable solution to boost energy access and increase climate resilience of the poorest. Directing climate funds towards off-grid electricity production is essential if we want to get on track to delivering SDG7, ensuring access to affordable, reliable, sustainable and modern energy services for all. Let’s act on it!