Seven steps to achieve Sustainable Energy for All

Achieving universal energy access by 2030 is within reach if the world can implement seven lessons from the recent report, Energizing Finance: Understanding the Landscape 2018, issued by Sustainable Energy for All (SEforALL).

This is the message that SEforALL has delivered at international forums, including the ECOWAS Sustainable Energy Forum in Dakar, Senegal, the Organization of Economic Cooperation and Development (OECD) in Paris, the Brookings Institution in Washington, D.C., and the UN COP24 climate summit in Katowice, Poland, since the report’s launch in November.

The Energizing Finance report is an important tool to help policy makers identify areas needed to deliver affordable, reliable and clean energy to all. The report tracks the flow of domestic and international, public and private money to close the energy access gap in 20 “high-impact” countries that account for 80% of the one billion people without electricity. The report also tracks the finance flows to the 20 countries that represent 80% of the nearly 3 billion people in the world who lack clean fuel for cooking. The latest edition of the report found that while financial commitments for electrification in these countries had increased by 56% in 2015/16 compared to 2013/14, it still fell short of the required amount needed to meet the SDG7 goal by 2030 Moreover, two-thirds of the funding went to South Asia, while financial flows to sub-Saharan Africa, where the largest energy access gaps exist, remained static.

There was a significant increase in private sector financing, but the share from international public financial institutions fell, which poses a threat to the least developed countries that depend upon public concessional finance. Financing for grids connected to renewable energy sources, such as solar and wind, has doubled, but investments for coal-fired plants tripled. The amount of financing flowing to the off-grid sector amounted to only 1.3% of all financial commitments tracked despite the revolutionary advances in the decentralized and renewable energy sector. Financing for clean cooking amounted to just $30 million, far short of the annual investment needed of at least $4 billion.

Rachel Kyte, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All (SEforALL), identified in her presentations seven key lessons that must be acted upon to achieve Sustainable Development Goal 7, delivering affordable, reliable and clean energy for all, by 2030.

First, policy matters. Governments need to set aggressive domestic targets for electrification, energy access, and clean cooking access. Countries that set aggressive national targets, do much better and go much faster in meeting them. They provide a point of reference for the government and the private sector, while it instills confidence for long term investors. A consistent policy reform agenda makes it easier for the private sector to operate, makes it easier for people to run small/medium sized enterprises, and makes it easier to integrate decentralized energy systems alongside electricity grid improvements.

Second, planning matters. Planning is essential to promote regional energy integration. This includes how to design regional grid systems and find ways to invest in them, while shifting the balance to clean energy as well as seizing the opportunity to provide off-grid energy for the rural poor to stimulate economic development in remote villages. Integrated planning should not be limited to just electrification, but should address cooling needs in a warming world to guarantee the supply of safe medicine and food and protect populations from extreme heat waves. Integrated planning would also help the health and energy sectors to work together, such as the electrification of health clinics.

Third, markets matter. Market mechanisms must be developed to present the world’s poor with cleaner, better energy options. We make assumptions about how much the poor can afford or are willing to pay for energy and these assumptions are reflected in a preference for centralized grid systems powered by subsidized fossil fuels. But people living on very low incomes spend a disproportionate share on energy and they are looking for cheaper alternatives. We need to invest more in building markets so that small businesses with energy solutions can operate better.

Fourth, finance matters. Development finance needs to break free from its conservative strategy of funding traditional energy projects and instead focus on innovative projects that other financial institutions, the private sector and governments are initially reluctant to invest in because of possible risks. Development finance is moving too slowly and pledging too small an amount of capital to make a transformative difference. Domestic banking sectors also need to be made aware of the extraordinary market opportunities in meeting energy access goals.

Fifth, mindset matters. We need to view energy systems from the bottom up as well as the top down to determine their effectiveness. The mindset that has dominated in the energy sector has been to think about the number of gigawatts to produce and the billions of dollars needed for a centralized grid to reach as many people as it can. However, what we need to focus on is delivering the levels of energy that people really need to sustain economic development and provide electricity to all. We need to ask is what is the appropriate amount of energy for households, small businesses and social services such as health care and education to thrive. If you build the picture from the bottom up and think about what are the actual energy needs, then you can have a very different conversation about the mix between decentralized energy and centralized energy systems, and between renewables and traditional sources of energy. We need to adopt a tailored approach on energy instead of wasting money and resources on inefficient carbon-based energy systems. If we transform the questions that we ask of the data, we can reach different solutions.

Sixth, cooperation matters. Governments must cooperate in creating regional energy systems to scale, that will allow markets to grow at speed. Cooperation is also needed between suppliers of renewable and non-renewable energy and operators of centralized and decentralized energy systems. Such cooperation is only in its early stages.

Seventh, politics matters. The energy sector is driven by political short-termism. Politicians make promises about affordable clean energy but then fail to act because they are locked into the old model of centralized electricity grids dependent on fossil fuel subsidies, such as coal fired plants, because they appear to represent a quick and easy solution. Subsidies for fossil fuels are increasing in the G20 countries despite their pledge to phase them out. Politicians need to be convinced that they can do something different. The revolutions in renewable energy and digitalization can lead to the growth of decentralized systems that promise affordable, clean and reliable energy. Politicians who embrace this message will be rewarded by the voters and investors and will be rewarded by the results.

The 2018 report is among several that are planned in the “Energizing Finance” series, which was first issued in 2017, to evaluate performance in closing the energy access gap in the 20 “high-impact” countries. SEforALL will issue an updated “Taking the Pulse--Understanding energy access markets in high-impact countries” in 2019 and a revised “Missing the Mark--Gaps and lags in the disbursement of development finance for energy access” in 2020.