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Unlocking public finance for decentralised energy access

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This is a presentation by Sarah Best, senior researcher at the International Institute for Environment and Development (IIED), on unlocking public finance for decentralised energy access in Tanzania and elsewhere.

The presentation opened the session on decentralised energy finance at the Money Where It Matters (MWIM) event, held in London from 7-8 December 2016.

The purpose of the MWIM event was to reflect on our insights and explore further how financing mechanisms can more effectively channel resources to the local level, and identify opportunities to increase flows of finance to the local level in new contexts for development assistance and national investment.

Participants at the event also agreed on outstanding questions that require further research on finance for and with local actors to achieve the effective use and management of funds to deliver climate resilient sustainable development.

More details: https://www.iied.org/promoting-local-access-development-climate-finance

Published in: Environment
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Unlocking public finance for decentralised energy access

  1. 1. Unlocking public finance for decentralised energy access 1 Sarah Best 2016 Unlocking public finance for decentralised energy access Sarah Best, Senior Researcher, IIED 7 December 2016, IIED Finance Forum
  2. 2. Unlocking public finance for decentralised energy access 2 Sarah Best 2016 Outline 1. Who needs finance and for what? 2. International climate finance & decentralised energy 3. Key barriers & solutions 4. Tanzania: Government and development finance for decentralised energy 5. Final thoughts
  3. 3. Unlocking public finance for decentralised energy access 3 Sarah Best 2016 1. Who needs finance and for what? • Energy users e.g. to pay for products, equipment, maintenance • Energy providers e.g. R&D, feasibility analysis, piloting, buying inventory, business growth • Financial institutions e.g. concessional finance to channel to providers, risk guarantees • Governments e.g. policy, regulatory and market development, capacity-building
  4. 4. Unlocking public finance for decentralised energy access 4 Sarah Best 2016 2. International public climate finance for decentralised energy access Note: Climate finance figures are based analysis of the Climate Funds Update (CFU) database, which covers public finance for all major international climate funds
  5. 5. Unlocking public finance for decentralised energy access 5 Sarah Best 2016 Decentralised energy access: climate finance provides 0.2% of additional investment needed The estimate of USD 23 billion is from World Energy Outlook, IEA 2011
  6. 6. Unlocking public finance for decentralised energy access 6 Sarah Best 2016 Use of 5.6 bn climate finance for energy – mainly middle-income countries and utility-scale projects
  7. 7. Unlocking public finance for decentralised energy access 7 Sarah Best 2016 Funding instrument: Preference for loans (to utility-scale projects in MICs)
  8. 8. Unlocking public finance for decentralised energy access 8 Sarah Best 20163. Key barriers to flow of finance to decentralised energy access General barriers (for all finance) • High risks (perceived, actual) • Investor returns and short-termism • Investment size and transaction costs • Policy and regulatory environment • Shortage of business models or quality plans • Political preference for large-scale Climate finance barriers Preference for loans versus grants Approaches of financial intermediaries Priorities of funds’ results frameworks
  9. 9. Unlocking public finance for decentralised energy access 9 Sarah Best 2016 Possible solutions to help channel finance 1. Improve targeting of Climate Funds • Earmark funds for decentralized energy • Adjust design features — eg risk appetite, results framework • Get the right balance of loan and grant funding 2. Strengthen national enabling environment • Use public finance to support policy and regulatory reforms • Strengthen institutions managing climate & energy finance in LICs 3. Channel finance through “aggregators” • Mechanisms to overcome inefficiencies of project-by-project funding, eg intermediary to pool funds (IDCOL) or aggregate consumers/projects (big data) • Can provide holistic market-building or business support services
  10. 10. Unlocking public finance for decentralised energy access 10 Sarah Best 2016 4. Tanzania: Gov’t and development finance for decentralised energy Current status: ~ 15-20% electrification ~ 4% access to non- solid fuels for cooking Government target is to achieve 75 per cent electrification by 2035
  11. 11. Unlocking public finance for decentralised energy access 11 Sarah Best 2016Limited Tanzania government funding for decentralised energy relative to utility-scale
  12. 12. Unlocking public finance for decentralised energy access 12 Sarah Best 2016 Development partner energy funding in Tanzania also skewed to large-scale
  13. 13. Unlocking public finance for decentralised energy access 13 Sarah Best 2016 Biggest funders of decentralised energy in Tanzania: DfID, AfD, EU and WB
  14. 14. Unlocking public finance for decentralised energy access 14 Sarah Best 2016 What’s the decentralised energy access financing gap in Tanzania?
  15. 15. Unlocking public finance for decentralised energy access 15 Sarah Best 2016 5. Final thoughts: key public finance priorities for leveraging private sector – or filling gaps • Reaching domestic providers (companies, NGOs and social enterprises) • Engaging domestic financing sources (banks, MFIs, savings groups, consumer assets) • Reaching the poorest people Mobisol: 80W panel + 3 lights = $46 downpayment + $14/month Poverty line in TZ = spending < US$17/month
  16. 16. Unlocking public finance for decentralised energy access 16 Sarah Best 2016 Contacts Sarah Best, IIED sarah.best@iied.org Ben Garside, IIED Ben.garside@iied.org References Rai, N, Best, S and Soanes, M (2016) Unlocking climate finance for decentralised energy access. IIED, London. http://pubs.iied.org/16621IIED/
  17. 17. Unlocking public finance for decentralised energy access 17 Sarah Best 2016 Discussion 1. What are examples and opportunities for ‘aggregation’ to channel finance into lots of small enterprises and projects? 2. How can we address risks associated with financing SMEs, especially domestic SMEs? 3. How can climate finance (international, national, local-level) address finance and other barriers to investing in energy access?

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