Monday 5th July 2021 – No singular entity can solve energy poverty alone and to truly accelerate the adoption of renewable energy in Africa, forging global partnerships will be essential.
Accelerating progress on meeting UN SDG 7 is undoubtedly a joint effort, including development banks, donors, agencies, governments, investors, global utilities, multinational companies and innovative scale-ups – all forming important parts of the funding puzzle. That is why Bboxx has partnered with everyone from the likes of Mitsubishi Corporation, EDF, Trafigura, Orange, Africa Infrastructure Investment Managers, USAID, UNCDF, Trine and many more.
While we all have a role to play, going forwards it is clear that new approaches and greater innovations are required if we are to truly make a dent on meeting SDG 7.
The traditional financial system does not make it easy to bring energy to the world’s population living in energy poverty, predominantly concentrated in Africa. And if the status quo is not enabling real and positive change to happen, then we need to explore a new currency that can help redress these global imbalances, essentially creating an accepted market with intrinsic value. The donor community has a huge role to play, but to be sustainable in the long term, we need a commercial solution too.
Commercial innovations urgently needed
Carbon credits is one area that has seen some significant progress. This innovation helps to incentivise companies doing the right thing for the planet. Certified Emission Reduction (CER) credits allow companies to trade carbon credits, and those that have already ventured into the renewable energy space have an opportunity to increase their revenues. Funding renewable energy projects in African using funds from sale of carbon credits has the potential to scale access while reducing dependence on non-environmentally friendly energy sources.
African countries who are signatories to the Kyoto Protocol and Paris Climate Agreement can leverage the Emission Reduction Purchase Agreement (ERPA) to trade surplus carbon credits with nations exceeding their assigned carbon caps. In return, African nations receive sustainable investments targeting localised renewable energy projects.
Another innovative approach to spur ‘patient’ funding of off-grid projects in Africa is the Distributed Renewable Energy Certificate (D-REC) Initiative. While still in its infancy, this initiative aims to bridge the critical energy gap by connecting sustainable corporate finance with verified small scale renewable energy projects. D-REC will be used to pave the way for friendlier funding of off-grid projects. Through results-based financing, financiers and developers pay for initial project costs and take full charge of its success. As the project advances, milestones are put in place, and whenever targets are met, incentives are given. The incentives are vital in reducing early-stage debts, unlocking more capital and boosting investor confidence.
These innovative approaches are encouraging – and the financial community needs to build on this momentum.
So, what next for innovation in financing SDG 7?
Going one step further, there could be potential to explore ‘impact credits’. While the shift from traditional polluting sources of energy to off-grid solar energy is hugely significant to the climate, the benefits do not stop there. Once someone has access to a clean energy via a Solar Home System or solar-powered mini-grid, they reap positive economic, social and health impacts. Energy access can mean starting a business, upskilling or educating. Time is gained from not using wood or kerosene, not to mention the health benefits – and the list goes on.
Now is the time to innovate further so we can truly move the dial on financing SDG 7 and overcoming energy poverty in Africa once and for all. By doing this, we can power inclusive economic growth and provide the tools to unlock the potential of individuals, communities, SMEs and entire nations.
Anthony Osijo, Group CFO and Head of Relationships at Bboxx