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Quest for universal energy: What is the role of public funds?

Every hour, enough energy to power the earth for an entire year comes from the sun. New technology is ready to harness that power as the global community transitions to alternaitve energy sources. For many (but not all) in developing countries, access to energy is an afterthought. Most people don't stop to think about the energy that powers their homes or charges their phones.

For over a billion people in Africa and Asia, access to electricity is a distant dream. Without access to energy, people have to struggle to complete daily tasks. Children can't study longer when their only source of light is daytime. Communities can't rely on health services when equipment does not work due to power cuts. Countries cannot achieve the Sustainable Development Goals if their citizens cannot power their dreams.

The lack of electricity is more likely for remote and rural communities. Expanding grid electricity is time consuming and too expensive for investments to reap a return.

The good news; rapid developments in technology for off-grid solar make access to energy for all possible.

Combined with innovative finance mechanisms, those technological advancements can reach the last-mile. In our energy ladder research in Uganda, most people found grid electricity to be unsafe. In the same research, the majority of people expressed their desire for off-grid solar solutions. Client surveys in Nepal tell the same story; people who access off-grid solutions save money and are more satisfied than grid options.

Getting off-grid energy solutions to rural and remote communities is difficult. Companies in the off-grid market need capital to innovate and expand their reach into these areas. But capital markets prefer to invest in opportunities that have quick returns. This does not bode well for expanding energy access to communities perceived as too small and 'unbankable'.

That is where public funding plays a vital role. The private sector will drive the future of off-grid solar energy. But like many innovations before it, public funds will play a key role in catalyzing that future. Official Development Assistance (ODA) can overcome the capital gaps and invest in riskier ventures. The backing of ODA can motivate private sector to invest and test new business models that expand energy access.

The UNCDF CleanStart Challenge Fund platform provides this service. It leverages donor funds to co-invest with private sector in innovative business models for energy access. Without the initial investment from public funds, these business models may never have taken hold. For example, our co-investment allowed Greenlight Planet to test and adapt its model to the Myanmar market. Now, the company has a presence in the country, providing energy services to communities previously beyond reach.

Benefits go beyond leveraging public funds. As a neutral institution, UNCDF offers each of its investments access to market data and technical support to succeed. When asked, many companies we have invested in point out the challenge in building local partnerships or accessing and analyzing data to understand market contexts.

An individual company can't solve these issues. With our existing local partnerships and pool of knowledge resources, we can provide the support needed for companies to succeed. For example, our energy ladder research provides insight on how companies can market products to increase purchases.

The next steps will be to transform how we use public funds. At the moment, public funding is often used for one-off grants. Our experience suggests companies need blended finance offerings, including equity and debt, to scale businesses. The UNCDF LDC Investment Platform is an important mechanism to meet this need. This new platform provides seed funding to investments in Least Developed Countries (LDCs) in the form of loans and guarantees (in addition to reimbursable grants). With its new offering of financial instruments, UNCDF CleanStart is engaging with its pipeline of energy companies in an expanded way.

Universal access to clean and affordable energy is possible. The technology and financing mechanisms make it a goal worth chasing. The private sector will lead the charge. But public funding and platforms like the UNCDF CleanStart Challenge Fund give the nudge needed to ensure last-mile communities are not left behind.

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