Market Insights: Accelerating access to off-grid energy solutions

The urgency of the situation is abundantly clear. Devastating floods are affecting countries in Asia, droughts, intense storms and wildfires have been experienced across Europe, Australasia and the Americas, and the frequency of severe weather events is increasing throughout Africa. It can feel overwhelming.

Looking back at thirty years of global efforts to address climate change, former Executive Secretary UN Climate Change (2010-2016), Christina Figueres recently said that addressing climate change is not about hope, but about decision, choice and courage, about doing what needs to be done.[i]

She is right.

However, hope often goes hand in hand with courage and is necessary if we are to affect change and inspire action and so I would like to take this opportunity to highlight some of the transformational work that InfraCo Africa – the project development arm of the Private Infrastructure Development Group (PIDG) – is doing in the sub-Saharan off-grid energy space, putting official development assistance funds to good use.

Energy access is recognised as a key driver for achieving many of the UN SDGs,[ii] yet 48% of people in sub-Saharan Africa still lack access to electricity.[iii] The International Energy Agency highlighted a stark statistic in its Africa Energy Outlook Report 2022: ‘Bringing access to modern energy for all Africans calls for investment of US$25 billion per year – a sum equivalent to the cost of building just one liquefied natural gas terminal.’ This highlights the case for redoubling our efforts to achieve universal clean energy access and shows that reaching this goal is within our collective means.[iv]

Grid-connected renewables – hydro, geothermal, wind and solar – are expensive to develop and can take many years to come to fruition, they can also be hampered by unstable grids and limited distribution infrastructure. InfraCo Africa recognises that these large power installations form a vital part of Africa’s future energy mix and we support a range of on-grid renewable energy projects across sub-Saharan Africa. We are also pioneering utility scale battery storage to overcome the challenges of integrating intermittent renewables with the grid.

But we can also work more nimbly to accelerate clean energy access. By deploying solar home systems, micro grids and mini grids in remote areas or where terrain is challenging, connections can be made more cheaply and rapidly than would be possible through grid-connection alone. Not only does access to solar power cut emissions from diesel generators and kerosene lamps, but it also improves household air quality, saves people time collecting fuel,  cushions them from the impact of global fuel price fluctuations and improves their health by eliminating indoor fuel burning. Decentralised renewable energy systems can make power supplies more resilient for consumers and businesses in the event of extreme weather events that could impact grid supply.[v]

Access to power does not, in itself, maximise positive development impact. In Kenya, by enabling individuals and businesses to access micro-financing for appliances our KUDURA Power East Africa project is developing a sustainable business model whilst also ensuring that people can maximise the impact of power. With access to clean power and affordable appliances, people can establish and grow businesses such as shops, flour mills and hairdressers. KUDURA is also exploring ways to incorporate water purification and pumping systems alongside its mini grids, an initiative which will promote better health in underserved communities.

Another example of how off-grid utilities are encouraging productive use of energy is Equatorial Power. With support from InfraCo Africa, Equatorial Power is scaling its innovative model in Rwanda and Democratic Republic of the Congo (DRC), creating agri-processing hubs with drying, refrigeration and ice-making facilities so that people can add value to their agriculture produce, reduce food waste and increase household incomes.

This focus on food security can also be seen with our Bonergie Irrigation project which is displacing diesel irrigation pumps with solar powered systems to increase farmers’ yields in rural Senegal. InfraCo Africa’s support is enabling Bonergie to scale its operations, installing up to 2,000 new solar-powered irrigation systems and 500 efficient drip irrigation systems.

We are also exploring ways to support commercial and industrial (C&I) solutions to supplement grid power, ensuring that outages do not affect the productivity or profitability of industries such as cold storage and agri-processing . Once proven, it is anticipated that these different models will be well positioned to attract further private sector finance to deliver power for agricultural, domestic and business customers across the region.

Despite the cost of solar panels having fallen over recent years and significant technological innovation in the battery storage sector, developers often find it difficult to attract traditional finance, particularly in frontier markets. With support from our Owners – the governments of the UK, The Netherlands and Switzerland – InfraCo Africa’s unique mandate enables us to test new financial instruments, de-risking these investments and attracting further development, private sector and institutional finance to the sector.

To this end, we recently announced that we will be piloting SE4All’s innovative Results Based Financing instrument – the Universal Energy Fund  (UEF) – to expand our Sierra Leone Mini-grid project. It is hoped that the project will identify the scheme’s potential to support more and larger mini-grid developments across the continent.

Developing Africa’s local capital markets will also be key to unlocking institutional finance from pension and insurance funds for off-grid energy assets. We anticipate that our support for guarantee facilities such as InfraCredit Nigeria and a new guarantee company in Kenya will give investors greater comfort to invest into less familiar asset classes whilst mobilising much-needed local currency finance for off-grid portfolios. Through its Climate Finance Blending Facility supported by FCDO, InfraCredit Nigeria is already providing guarantees for bond issuances by mini-grid developers in the country.