The catalytic impact of grant funding to stimulate wider investment.
Securing sufficient finance for energy access projects in Africa has been a real challenge, but TEA partners are demonstrating how grant funding, coupled with commercialisation and incubation support can be a catalyst to stimulate wider investment.
There is an urgent need to develop new finance mechanisms and funding sources for clean energy projects in Africa.
Sustainable Energy for All (SEforAll) found, for example, that of the $45 billion per year needed to achieve universal residential electrification, only $16 billion was invested in 18 key sub-Saharan African and Asian countries (Energizing Finance 2020) where the need was greatest.
As well as there being a shortfall, the funding that is available often supports projects using fossil fuels to generate electricity. The limited volume of investment going towards clean, renewable energy projects means that issues of gender equality, economic opportunity, climate change, and protection of land and forests remain unaddressed, according to SEforAll.
The TEA programme is focused on tackling this issue through the development of models to demonstrate how public sector funding in clean energy projects can catalyse socially and environmentally responsible private sector investment.
Working with delivery partners, TEA is mobilising different types of funding from a variety of sources. As of March 2021, it has managed to raise over £673m through contributions from other public institutions (over £91m), and the private sector (over £582m). Examples of successful partnerships in the financial space include:
- Acumen invests equity into early-stage energy access companies via its Pioneer Energy Investment Initiative (PEII) which seeks to de-risk private investment. PEII has delivered 43x leverage on its investments (up to March 2021).
- Energise Africa provides individual investors in the UK with the opportunity to invest in providing home solar energy access to African families with a first investment guarantee of £100 and a 6% return. The TEA programme’s initial investment of £3.6 million – covering set-up costs, guarantees and match funding – has resulted in £18.5 million of investment (up to the end of 2020).
- Crowd Power, the TEA programme’s vehicle for innovation in crowdfunding for energy access, has been supporting fundraising campaigns on a variety of platforms including Crowdcube, KIVA and Wajenzi – a crowdfunding platform designed to enable the diaspora in Europe to invest in businesses in Africa. Crowd Power’s campaigns have raised £2.6 million from individual investors. (Energy 4 Impact, which delivers Crowd Power, produces the Crowd Funding Energy Access – State of the Market Report which provides valuable investment information to the sector).
- Powering Renewable Energy Opportunities (PREO) allows companies with productive use technologies to pilot innovative business model projects with 50% funding from UK aid via the TEA programme matched by 50% from the grantee. UK aid has co-invested in PREO with €5 million of funding from the Ikea Foundation.
The TEA programme has also demonstrated the benefits that come from collaboration between delivery partners. For example, Crowd Power has been supporting members of the Global Distributors Collective (GDC), a network of last mile distributors, to overcome the challenges of the Covid-19 crisis through targeted crowd funding. The GDC is supported by the TEA programme to make last mile distribution the first priority so that life-changing products can be made affordable and available to all. GDC members have been impacted by the coronavirus pandemic, unable to sell effectively to their customers and having trouble maintaining stock levels. Crowd Power helped members raise essential investment by funding due diligence activities, or providing match funding for campaigns. For example, GDC member Bidhaa Sasa, which sells clean cookstoves and water tanks to women in rural Kenya, raised $200,000 on KIVA with Crowd Power’s support.
Another example is Simusolar, a leading productivity-enhancing agricultural equipment provider to East Africa’s rural economy, which secured funding from Acumen. Over 60% of its customers live on less than $3.10/day and its water pumping technology has been shown to transform incomes: 93% of pump customers reported an increase in productivity yields and 100% reported an increase in income. Other TEA programme partners have also been supporting Simusolar: it has raised just under £900,000 from eight companies on Energise Africa and received a PREO grant for an innovative solar pumping project with NUCAFE – an aggregator for small holder coffee farmers in Uganda.
The TEA programme has demonstrated how UK aid money can work harder. For every £1 of UK government funding spent up to March 2020, an additional £6.73 has been secured from co-financiers. This has been done mainly through spring-boarding of individual companies to commercialisation and sales as a result of initial UK aid support. Close engagement and partnership with foundations and philanthropic institutions has also helped to identify and support energy access themes which align with TEA’s own delivery.