How blended finance helped to keep energy supplies flowing during COVID-19

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Sarah Bieber, Head of Energy Partnerships, Acumen

  • COVID-19 has put energy access at risk in many vulnerable communities.
  • In moments o
  • f crisis, using the right type of capital to address market failures is key.
  • A blended finance approach backed by multiple partners has proven effective in stabilizing the energy access sector.

Most start-ups fail before their fifth year, and in emerging markets they face an even steeper climb. It’s more difficult yet to be a social enterprise, working to deliver services to last mile customers living in fragile countries. Throw a global pandemic into the mix and the margin of error evaporates altogether.

Take Easy Solar, an off-grid solar company providing clean, reliable power to 550,000 customers in Sierra Leone and Liberia. When the COVID-19 crisis hit, the fast-growing business faced a triple-whammy: supply disruptions meant stock outages and lower sales; lockdowns meant many customers could no longer make payments; and frozen capital markets made it impossible to bring in more investments.

“We mostly focused on keeping the lights on for our customers by sending them free days of energy ahead of full lockdowns, but we faced a very tight cash situation which had the potential to affect staffing and business continuity,” said Easy Solar CEO Alexandre Tourre.

Easy Solar is just one example of the hundreds of social enterprises that make up the energy access industry — a sector that has delivered affordable, renewable energy to 470 million people living beyond the grid. Before the pandemic, the sector had been booming, with a six-fold increase in investment over the last decade to what is now a $1.75 billion market.

The virus-induced economic crisis put this progress at risk, threatening off-grid households’ newfound access to electricity,as well as slowing down progress towards access for nearly 800 million people still waiting for energy. Ultimately, the crisis endangers the sector’s ability to achieve Sustainable Development Goal 7 (SDG 7) — universal energy access — and the many other SDGs that depend on energy access.

It also left the dozens of investors and donors who have backed this burgeoning industry wondering what could be done to help safeguard progress.

An unprecedented partnership to stabilize the sector

An unprecedented partnership of public and private investors, led by Acumen and the CDC Group, stepped up to lead a sector-wide coalition to help energy access companies in sub-Saharan Africa and Asia weather the global recession. The result was the Energy Access Relief Fund, which is part of the World Economic Forum’s COVID Response Alliance for Social Entrepreneurs action agenda and aims to ultimately marshall $80 million in relief capital. While the size of the fund matters, the blended structure is just as important. Especially in moments of crisis, using the right type of capital to address market failures is critical.

Members of the Alliance, including Acumen and private foundations like the IKEA Foundation and the Shell Foundation, joined government donors, and multilateral and development finance institutions to build an innovative blended finance structure designed to meet the liquidity needs of energy access companies so they could continue operations, maintain customers’ access to off-grid energy, and protect the sector’s growth.

What is the COVID Response Alliance for Social Entrepreneurship?

The COVID Response Alliance for Social Entrepreneurship is a coalition of 85 global leaders, hosted by the World Economic Forum. Its mission: Join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality.

Its COVID Social Enterprise Action Agenda, outlines 25 concrete recommendations for key stakeholder groups, including funders and philanthropists, investors, government institutions, support organizations, and corporations. In January of 2021, its members launched its 2021 Roadmap through which its members will roll out an ambitious set of 21 action projects in 10 areas of work. Including corporate access and policy change in support of a social economy.

For more information see the Alliance website or its “impact story” here.

Today, with the first close of $68 million in commitments, the Energy Access Relief Fund will begin the process of providing much-needed liquidity to up to 90 energy access companies. For Easy Solar and the few other companies that received early support ahead of the Fund’s launch, the impact is clear for both the company and the customer: “While we’re still going through a difficult period, the loan from the Energy Access Relief Fund allowed us to continue operating at full speed while preserving employment,” said Tourre.

In stabilizing the sector, the Energy Access Relief Fund demonstrates the power of global partnership and teaches us three key things:

It takes all of us

The sheer scale of the problem meant that no one funder could have pulled this off, so it was essential to find a way to bring in various funders and various types of capital. One size does not fit all. Commercial funds are great for scale, but are less flexible and have return expectations. Philanthropic funds can be put in place quickly, but are the most coveted and therefore hardest capital to raise. Concessional debt, on the other hand, holds out some chance to return capital while still offering borrowers the rates they need as a bridge to recovery.

Furthermore, investors need to have flexibility to bend their processes and rules to make things happen quickly. By blending different types of capital along with a portfolio guarantee, the Fund can leverage philanthropic grants to de-risk senior investors and crowd in more investment.

Do what’s right, not what’s easy

Nothing about building the Energy Access Relief Fund was easy. It involved managing competing objectives, as grantmakers seek leverage, speed, and inclusivity while senior investors focus on risk mitigation. Raising precious grant capital to de-risk the fund, just as aid budgets were shrinking, was tough — as was finding investors willing to accept 0% or 1% returns. Despite the challenges of balancing the competing requirements and constraints of different types of investors, it was critical that everyone work towards a common goal, in this case, protecting the progress on SDG 7.

The pandemic reminds us that we are all interconnected and share the same fundamental needs. No matter where we live, each of us needs basic services, access to information and the ability to connect with our loved ones. For each of these, we need energy. During lockdowns, almost a billion people faced staying at home without it — with no power to work, to charge a phone, or even to turn on a light.

Listen to entrepreneurs and customers first

This collaborative effort was born with the companies and customers in mind. Capital providers, technical assistance partners, and data collectors rallied to assess company and customer needs, while working in parallel to design the necessary financial instruments and technical support. With pre-existing infrastructure in place for rapid surveys and data collection through partnerships with SEforAll, GOGLA, EnDev, AMDA and 60 Decibels, it was possible to quickly assess what companies and consumers needed most.

Energy access companies that were already operating on razor-thin margins in tough markets continue to struggle with disruptions wrought by COVID-19. The Energy Access Relief Fund isn’t a silver bullet, but it plays a vital role in keeping this important industry on track. As important, it’s a demonstration of what’s possible when the public and private sector come together to deploy innovative financial tools and blended capital.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Australia urged to evacuate offshore detainees amid widespread, acute mental distress

Any doubt?

From funders to partners: elevating community expertise to help communities thrive

German opposition win in Lower Saxony felt all over Europe

London is becoming the world’s first National Park City

Yemen consultations have started, insists top UN negotiator

Commission approves emergency measures to protect eastern Baltic cod

How data can help mining companies tackle their trust deficit

From drought to floods in Somalia; displacement and hunger worsen, says UN

From raised fists at the 1968 Olympics to taking the knee: A history of racial justice protests in sport

Will the European Court of Justice change data privacy laws to tackle terrorism?

This is how travel hotspots are fighting back against overtourism

Do all you can to resolve climate change ‘sticking points’ UN chief urges South-East Asian leaders, in Bali

Four lessons from Africa on building effective business ecosystems

Australian homes are turning to solar power in record numbers

European research priorities for 2021-2027 agreed with member states

Meeting the basic needs of our healthcare workers

Mental health: a medical school’s demand

Embracing the diversity in a multicultural city of Romania

The EU Commission lets money market funds continue the unholy game of banks

How the power of sport can bring us together and drive social justice

EU Blue Card: Commission welcomes political agreement on new rules for highly skilled migrant workers

Why building consumer trust is the key to unlocking AI’s true potential

Ukraine’s new political order not accepted in Crimea

Protecting European consumers: toys and cars on top of the list of dangerous products

This is how New York plans to end its car culture

Progress against torture in Afghan detention centres, but Government needs to do more, says UN report

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

Is South Korea set to lose from its FTA with the EU?

Anti-vaccers: does the empty can rattle the most?

The role of public affairs in student NGOs

Future Forces Forum: Prague will be hosting the most important project in the field of Defence and Security

Latin America’s cities are ready to take off. But their infrastructure is failing them

Political power of women suffering ‘serious regression’, General Assembly President warns

7 top things to know about coronavirus today

How global trade can save lives and livelihoods – and help protect the planet

EU job-search aid worth €9.9 million for 1,858 former Air France workers

European Semester 2018 Spring Package: Commission issues recommendations for Member States to achieve sustainable, inclusive and long-term growth

COVID-19: Save European culture and values, MEPs tell Commission

Children suffering ‘atrocities’ as number of countries in conflict hits new peak: UNICEF

We need to rethink ESG to ensure access to water and sanitation for all

International Court of Justice orders Pakistan to review death penalty for Indian accused of spying

Rise in violent conflict shows prevention ‘more necessary than ever’: UN chief

Top UN political official updates Security Council on Iran nuclear deal

It’s not summer holidays what lead to the bad August of the German economy

How can the world end viral hepatitis by 2030? 5 experts explain

How to talk about climate change: 5 tips from the front lines

Failure to open accession talks with Albania and North Macedonia is a mistake

Myanmar doing too little to ensure displaced Rohingya return: UN refugee agency chief

Further reforms in Sweden can drive growth, competitiveness and social cohesion

EU-UK relations: solutions found to help implementation of the Protocol on Ireland and Northern Ireland

Statistics show the ugly face of youth training schemes

Croatian Presidency outlines priorities to EP committees

Media and entertainment in flux: it’s time for the close-up

5 droughts that changed human history

Are the G20 leaders ready to curb corporate tax-avoidance?

European Youth, quo vadis?

China is the first non-EU country to invest in Europe’s €315 billion Plan

EU institutions agree on priorities for coming years: A common agenda for our recovery and renewed vitality

Coronavirus Global Response: EIB and Commission pledge additional €4.9 billion

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s