This blog was published on 15th December 2023.
Imagine a solar-powered Africa. Every household, farmer, business, clinic, and school has affordable clean energy. People are connected to networks of knowledge and finance. They are educated and informed about markets, weather, and healthcare. Food and agriculture is more productive and more resilient. Entrepreneurs have the power they need, there are jobs in green value chains, and local economies flourish. This is the promise of the inclusive energy transition in Africa. This is the promise that is being broken by failing climate finance.
The off-grid solar industry is the fastest and cheapest way of bringing low-carbon electricity to hundreds of millions of climate-vulnerable people and helps them adapt to a changing climate. It has seen about $3.5bn in investment in the last ten years and desperately needs to grow. For an industry with such strong climate credentials that can have a direct impact fast and leverage a lot of private capital along the way, it has mobilised only a fraction of the climate finance.
Climate finance was a red-hot topic again at COP28. Developed countries are still short on their commitment to mobilise $100bn/year in climate finance1 and developing countries are hurting from extreme weather and shocks from the global economy. The commitment of financial support to build resilient, clean economies and forget fossil fuel led development is not being met. It’s widely recognised that climate finance is not working as promised: – it’s not enough, it’s not fast enough, and it’s not going to who needs it most.
So how much climate finance is being mobilised and where does it go? In 2021, climate finance reached a total of $89bn, with Multi-lateral agencies and Bi-laterals providing $39bn and $35bn respectively2. Mobilised private finance was a meagre 16%, pointing to a failure of public climate finance in leveraging the deeper private capital markets (though a lot of private finance may not be counted in this methodology).
The bulk of climate finance has gone to middle-income countries as loans, typically for big infrastructure projects focused on mitigation for high emitters. Africa received $2.8bn annually (average 2016-20), 21% of the total. The lowest-income countries received only 5% of the total! Two-thirds of funds went to mitigation, a quarter to adaptation, the rest was cross-cutting. Energy is the biggest category with 32% of the total. Funding was predominantly as loans (72%), very little equity (3%), and grants (25%). Grants were used more for adaptation, with the Climate Funds giving more than half as grants, and bi-laterals a bit more than a third.
Climate finance supports activities that mitigate carbon or helps countries or communities adapt to the changing climate, or both, with investments often driven by country-led priorities as defined by:
Nationally-Determined Contributions (NDCs): Each country has developed a NDC that sets out their target and strategy for mitigating carbon emissions. Off-grid solar is included in a small part in some countries. This needs to be strengthened, through engaging with national processes (and the support players such as NDC Partnership). I expect a flurry of activity in the NDCs as new versions are created for COP30 in 2025 with an ambition to ratchet up emission reduction targets.
National Adaptation Plans (NAPs): Some 50 countries have defined their own NAP to set their priorities needs for adaptation, covering all segments of the economy (food & ag, water, etc.). Energy access is an important enabler of adaptation (as presented in this study) though is typically not included in NAPs. More research/evidence on the ways energy access contributes to adaptation and advocacy for inclusion of distributed renewable energy in NAPs is needed.
The main thrust of energy transitions in developed countries is from fossil fuels to renewables. Whereas in sub-Saharan Africa – where many countries have low levels of access to electricity and a high share of renewables (e.g. Kenya’s 3GW of installed capacity is 92% renewables) – energy transitions are about shifting from low to high levels of availability and affordability. It seems the NDC and NAP framework was created with a Global North lens; achieving universal electricity access is not a mitigation priority and electricity access is yet to be widely recognised by the adaptation community.
Nonetheless, for the off-grid solar industry to tap into the increasing flow of climate funds, the sector needs to establish itself in the influential NDCs and NAPs, with the adaptation play being arguably the most fitting entry point. Universal Integrated Energy Plans are a powerful tool to inform this, and perhaps deserve their own place in climate finance frameworks.
There are four multilateral Climate Funds with a mandate from UNFCCC to disburse climate finance:
1. Green Climate Fund (GCF). The big one. GCF has secured $13bn in its latest ‘replenishment’ at COP28. Mafalda Duarte, GCF’s new Executive Director, launched their initiative to raise $50bn by 2030. She has emphasised the need to reform to make funds more available, accessible, and affordable. GCF is a flexible fund with multiple instruments and supports mitigation and adaptation, and readiness support, and 121 agencies accredited to implement projects. We applaud GCF for recognising energy access in its Strategic Plan 2024-27 and the pipeline of distributed solar projects, namely:
- Acumen’s Hardest to Reach fund – a $250m facility that GCF anchored to bring access to electricity to 75m people in 16 countries. At the launch at COP28, Henry Gonzalez, Deputy Director of GCF, stated “this project is a prototype for projects we want to do more of”.
- The KawiSafi II project will create a $200m venture equity fund aimed at closing the investment gap in energy transition, productivity, and mobility & logistics.
- The African Development Bank’s $800m Leveraging Energy Access Finance Framework (LEAF) will help spur commercial and local currency investments to scale up the activities of DRE companies in six countries.
2. Climate Investment Fund (CIF). This works with the six multi-lateral development banks, with a tight program development structure that offers the fewest “entry points” for projects. Getting close to the MDBs and their program windows is the recommendation.
3. Global Environment Facility (GEF). Is a family of funds with a current capitalisation of $5bn that is disbursed as grants. It has a number of projects supporting DRE (AMP and CAP) though energy access represents only a small portion of their program.
4. Adaptation Fund (AF). This is a $1bn fund that predominantly disburses grants, of which 40% is in Africa, 29% Asia and the Pacific. They have a mandate to fund “tangible adaptation results on the ground in the most climate-vulnerable countries and communities”. Energy access is not recognised as a theme by the fund, with that being considered a pure mitigation plan, though adjacent/aligned sectors (food security, water infra, etc.) does feature. Demand for the fund is high and their funding sources are unpredictable.
The big climate funds are saying that climate finance urgently needs to go to the poorest and most climate vulnerable, and that reform is coming. The industry should be proactive in engaging with these funds (and their intermediaries) and developing the pipeline of projects.
The MDBs are also a major player in mobilising climate finance and are ramping up their commitments. The World Bank Group recently launched ASCENT, a $5 billion program that aims to leverage an additional $10 billion, and a $750m top up of the DARES Nigeria subsidy scheme. Clearly, the worlds of climate finance and development finance are converging.
The industry needs to ready itself and support the move from commitments to action. Here’s how:
- Integrate distributed solar into the climate framework, including NDCs, NAPs, Climate Funds. We need to engage in national processes and with global funds to raise awareness and build capacity.
- Build research and evidence of how distributed solar contributed to adaptation and resilience. We need a robust and positive narrative for distributed solar as an enabler of productive and resilient economies.
- Develop the pipeline of projects and investment plans. Climate finance – from MDBs, Bi-lats, climate funds – needs to focus on leverage, not loans. De-risking DRE will unlock the deep pockets of commercial capital, and can help manage forex risks by engaging national financial institutions.
The off-grid solar industry represents a direct, fast, and impactful climate investment for people who need it most. Together we can create productive and resilient economies. Let’s help fix climate finance.
GOGLA’s Access to Finance programme is being supported by GET.invest, a European programme that mobilises investment in renewable energy, supported by the European Union, Germany, Norway, the Netherlands, Sweden, and Austria.
Footnotes
- Climate Finance is not to be conflated with Carbon Finance which is a distinct mechanism ↩
- OECD (2023), Climate Finance and the USD 100 Billion Goal. https://www.oecd.org/climate-change/finance-usd-100-billion-goal/ ↩