Energy Policy 47 (2012) 8793

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Financing off-grid sustainable energy access for the poor

Yannick Glemarec 
United Nations Development Programme, New York, United States

a r t i c l e i n f o abstract

Article history: This paper examines the role of public instruments in promoting private nance to achieve off-grid
Received 22 December 2011 sustainable energy access. Renewable energy technologies are increasingly becoming the cheapest
Accepted 14 March 2012 solutions for off-grid energy access. The dramatic uptake of mobile phones in developing countries
Available online 30 March 2012
shows how quickly decentralized services can develop on a commercial basis under the right
Keywords: conditions, and raises the prospect that private nance could also drive decentralized energy access
Energy policy for the poor. Indeed, there are already a number of instances of clean energy solutions such as solar
Market barriers portable lights, household biogas units or solar home systems that have managed to scale-up through
Finance leveraging private nance. However, the experience gained from rst-generation market development
projects show that, in almost all cases, signicant public resources have been necessary to increase the
affordability of clean energy technologies, provide access to nancing for the poor, and remove non-
economic barriers. Such public interventions may be funded by international public nance, domestic
budgets and carbon nance. Despite mounting scal constraints facing governments worldwide, the
emergence of new sources of climate nance and the political momentum in support of energy subsidy
reforms, as well as new programming modalities, offer opportunities to leverage additional resources to
achieve universal energy access by 2030.
& 2012 Elsevier Ltd. All rights reserved.

1. Introduction Deichmann et al., 2010). The rapid uptake of mobile phones

As a consequence of the global economic and nancial crises,
the outlook for additional ofcial development assistance (ODA)
is rather dim in the coming years. At the same time, a recent
study (Hudson Institute, 2011) estimates that private ows of
capital from OECD countries to developing countries amounted to
USD 455 billion in 2009.1
This is more than a fourfold increase since 2002. As a
comparison, ODA in 2009 was estimated at USD 120 billion. In
this context, many development organizations, both bilateral and
multilateral, are increasingly prioritizing their efforts to engage
the private sector in order to look at new and innovative forms of
investments, nance and partnerships to catalyze and drive
development.2
Off-grid renewable energy technologies both at the indivi-
dual systems level, such as solar home systems, and at the
mini-grid level servicing 50100 households are increasingly
becoming the cheapest solutions for sustainable energy access in
a range of locations (REN21, 2011; UNEP, 2012; Szabo et al., 2011;
 Tel.: 1 212 906 5143; fax: 1 212 906 6998.
E-mail address: Yannick.glemarec@undp.org
1
$228 billion were private investments, $174 billion remittances and $53
billion were philanthropic ows.
2
See 2010 Donor Statement as an example of this increased emphasis: http://
www.enterprise-development.org/download.aspx?id=1645
shows how quickly decentralized services can develop on a
commercial basis in developing countries under the right condi-
tions. It is clear that in a time of overall challenges for traditional
development assistance, the private sectors role in achieving
sustainable energy access is emerging as a critical question for
public policy makers and development practitioners. This paper
attempts to respond to this question by examining the results
of the rst generation of publicly funded market-driven pro-
grammes for clean energy access which have been implemented
worldwide. It draws on reports and interviews of project man-
agers from multilateral agencies who have been supporting this
rst generation of market-driven projects as well as the online
library of mitigation evaluations of the Climate Change evaluators
Community of Practice hosted by the Evaluation Ofce of the
Global Environment Facility.3 This analysis is augmented by a
review of the peer-reviewed literature.
Section 2 of this paper summarizes the recent history of
decentralized telecommunication services in developing coun-
tries and discusses possible lessons for off-grid renewable energy
technologies. Section 3 analyzes the key barriers to a rapid
commercialization of off-grid renewable energy technologies
and suitable public market creation initiatives. Section 4 reviews
3
The climate change Evaluators Community of Practice has collected a library
of almost 500 evaluations on project, programme and policy and portfolio level,
including for decentralized renewable energy access.

0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2012.03.032
88 Y. Glemarec / Energy Policy 47 (2012) 8793
the options for funding of public instruments to support market
creation for universal energy access.
2. The growth of the mobile industry and its relevance for
clean energy access
The International Energy Agency (IEA) estimates that in 2009
USD 9.1 billion was invested globally in extending access to
modern energy services4 and that annual investment must
increase ve-fold to USD 48 billion a year to provide universal
modern energy access by 2030 (IEA, 2011). Although the sum
estimated by IEA to achieve universal energy access is only
equivalent to about 3% of global energy expenditure, the difculty
of mobilizing such an amount from public resources should not
be under-estimated. Energy access programmes will need to
compete with other priority programmes for scarce domestic
and international public resources. Development practitioners
will need to build a business case for public resource allocation
for universal energy access and use these scare resources in a
catalytic manner to leverage complementary private nance.
The rapid diffusion of technologies such as mobile phones to
low-income consumers demonstrates the potential of innovative
commercial models to provide universal access for basic services.
From 1960 to 2000, telephone landlines grew so slowly in sub-
Saharan Africa that coverage was limited to 1.4 lines per 100
inhabitants in 2000 (Deichmann et al., 2010). In the past, industry
watchers believed there was little opportunity for mobile tech-
nology to remedy this situation in markets where the majority of
people live at or below subsistence-level income. The upfront cost
of a handset was thought to be an insurmountable barrier for the
billions of individuals living on just a few dollars per day. Yet,
emerging markets have become the primary growth opportunity
for the telecommunications industry and, with the right business
models, mobile phones are today accessible to some of the
worlds poorest.
As of October 2011 (ITU, 2011), there were 5.9 billion mobile
subscribers worldwide. The majority of these subscribers were
located in developing countries, where the subscriber penetration
was estimated at 79% of the total population. Given that entire
villages in poor and/or rural communities will often share one or
two cell phones, it is also estimated that 8090% of people in
some poor countries have at least minimal access to a cell phone
(Zuckerman, 2009). Furthermore, close to 80 million mobile
subscribers, most of them in developing countries, have no access
to the electrical gridand yet use a mobile phone (UNDP, 2012).
The dramatic uptake of mobile phones in developing countries
can be credited to the emergence of two main technology
standards and to several innovative business models. Pre-paid
platforms were developed, allowing customers to purchase air-
time at a price as low as USD 0.25 per minute, share airtime and
even buy airtime on credit. Handset prices were slashed, with the
introduction of ultra low-cost handsets, bringing prices to as low
as USD 15 per unit in line with the capacity for upfront payment
of poor households (Proparco, 2009). Another vital factor has been
the liberalization of telecoms markets and the issuing of licenses
to rival operators. Mobile telephony is intrinsically more amen-
able to competition than xed-line, and the uptake of mobile
telephony was particularly striking in competitive markets while
it stagnated in the few remaining countries where mobile tele-
communication remains a government-run monopoly (The
4
For its analysis, IEA denes modern energy access as a household having
reliable and affordable access to clean cooking facilities, a rst connection to
electricity and then an increasing level of electricity consumption over time to
reach the regional average.
Economist, 2009). They are strong anecdotal evidences that access
to telecommunication services in developing countries can unlock
entrepreneurship, promote economic development, lead to
greater political empowerment, and provide tax revenues for
governments (Roller and Waverman, 2001; The Economist, 2009).
The growth of the mobile phone industry offers several lessons
for the rapid commercialization of new technologies. With the
right regulatory environment and business models, the poor have
the capacity and the willingness to fully or partially pay for
services that provide clear, immediate and substantial benets.
Similarly, the private sector has the capacity and appetite to
invest in new service delivery mechanisms provided that there is
commercially viable unmet demand.
Decentralized clean energy markets display some character-
istics similar to mobile telephony markets. Low-income house-
holds and micro-enterprises can gain several direct economic
benets by adopting clean energy systems, including: (i) reduced
energy expenses; (ii) reductions in household expenses, particu-
larly for health care (reduced respiratory problems, etc.); (iii)
increased net incomes; and (iv) savings in time and effort (UNDP,
2012; Sovacool et al., 2011; Clemens et al., 2010). Maybe not
surprisingly in views of these benets, some clean energy markets
in developing countries are experiencing double-digit growth
rates. Solar home systems (SHS) in Africa have grown by 13% a
year over the past decade and conservative assumptions suggest
that the African market for off-grid renewable lighting could
experience 4050% annual sales growth during the next decade
(IFC, 2010).
Despite these instances of impressive growth, the number of
people without access to electricity in sub-Saharan Africa is
expected to increase by 10%, from 585 million in 2009 to 645
million in 2030 under a business-as-usual scenario, as the rate of
connections will not be able to keep pace with population growth.
Globally, over 1 billion people will remain without access to
electricity by 2030.
While establishing new markets in mobile communications
and clean energy technologies share some characteristics, they
have also some fundamental differences. Mobile telephony has
relatively low physical infrastructure requirements, and can reach
remote areas in a more cost-effective fashion than decentralized
clean energy technologies. Mobile phones simplicity of use has
also been a major factor in its adoption all over the world (UNDP,
2012). In contrast, clean energy development and access face a
large number of inter-connected information, institutional, beha-
vioral, technical and nancial barriers.
Based on a meta-evaluation of independent evaluations of
World Bank, UNDP and UNEP market creation/transformation
projects for clean energy development co-nanced by the Global
Environment Facility (GEF), Woerlen (2011) found that sustain-
able market development involves four main groups of stake-
holders: users of the technology, the supply chain (e.g. local
manufacturers, assemblers, shops and maintenance technicians),
policy makers and nanciers. Each of these groups typically
encounters a number of barriers that prevent them from using
or supporting the sustainable energy technology. Woerlen (2011)
also identied 20 key investment barriers across the four types of
stakeholders (Table 1).
This means that none of these stakeholders alone can trans-
form a market. The support of a single one of the stakeholder
groups is a necessary but not sufcient condition for scaling up a
given technology. Financial de-risking instruments (partial loan
guarantees, political risk insurance, etc.) aimed at encouraging
private investment will have little impact in the absence of strong
consumer demand, local technical capacity and supportive reg-
ulatory instruments. The severity of these different barriers will
vary with location, technologies and consumer groups, and a
 Y. Glemarec / Energy Policy 47 (2012) 8793
Table 1
Key barriers to market creation for sustainable energy development.
Source: Adapted from Woerlen (2011).
Barriers Consumers/ Policy Local Supply chain and
users makers nanciers infrastructure
Lack of X X X In contrast, the cost of clean energy technologies is rapidly
affordability
Lack of access X X
Lack of expertise X X X X
Lack of X X
motivation
Awareness X X X X
Lack of business X X
model
Lack of cost X X X further increase their competitiveness against fossil-fuel based
effectiveness
unique mix of information, regulatory and economic policies will
be required to remove them in each situation (Glemarec, 2011).
Most studies looking at off-grid renewable energy barriers tend to
emphasize economic and technical barriers but ignore or down-
play end-user values and behaviour (Sovacool et al., 2011).
Thus, a key challenge for policy makers aiming to leverage
private nance to catalyze and drive off-grid clean energy access
is to identify the public policy levers required to remove the
specic investment barriers for a given technology in each
location.
3. Policy levers for off-grid sustainable energy market
development
Public policies to spur new business models and accelerate the
commercialization of clean energy technologies will need to
address these barriers in an integrated manner. Based on the
experience of the rst generation of market-driven programmes
(UNDP, 2011, 2012), work will be needed on at least three fronts5:
 increasing affordability of clean energy access technologies for
the poor;
 increasing access to nancing for the poor; and
 removing non-economic barriers.
3.1. Increasing affordability of clean energy access technologies
The failure of governments to achieve signicant electrica-
tion in many countries has seen the growth of decentralized
energy solutions based mostly on fossil fuel such as diesel-fuelled
micro-grids and liqueed petroleum gas. It is estimated that poor
households in Africa face recurring expenditures on fuels ranging
between 10% and 25% of their monthly household budgets.6 The
price of kerosene has tripled in Africa during the last decade and
5
For the sake of brevity, this generic description of public policies to remove
market barriers refers to both individual/household-based systems and mini-grids
(servicing 50100 households). However, substantial differences exist between
these two types of off-grid system. Mini-grids are often more cost effective on a
US$/kWh basis than individual systems. They also present slightly different risk
proles and face a broader range of non-investment barriers than stand-alone
systems, such as the need for collective management, billing and payment
arrangements, etc.
6
80% of the population lives on $2.5/day or less in sub-Saharan Africa. The
typical household consumption is 13 kWh/day for users already connected
(Szabo et al., 2011), with average fossil fuel-based electricity prices of 18 US cent
per kWh (Liebreich, 2011). However, in some cases the inhabitants of rural areas
already pay a much higher amount for diesel electricity (Szabo et al., 2011).
89
is expected to continue rising in the coming decade. Oil price
volatility is also expected to increase. Poor households commonly
devote around 60% of their income to food (McKinsey & Company,
2011). A doubling of the oil price could therefore wipe out the
remaining income available to be spent on other goods and
services.
falling and they are increasingly becoming the cheapest and most
sustainable solutions in levelized terms for energy access to the
poor in numerous off-grid situations. Rapid technological innova-
tion in basic solar technologies and a scale-up of commercializa-
tion efforts by entrepreneurs is driving a substantial decrease in
the manufactured price of clean energy technologies and will
sources of electricity in the coming years. Large-scale (on-grid)
solar power capacity could become available at around USD 1 per
watt by 2020, down from more than USD 8 per watt in 2007 and
USD 4 watt in 2010 (McKinsey & Company, 2011).
However, as low-income consumers do not have the luxury to
reason in terms of levelized cost of energy; upfront costs are likely
to remain the major bottleneck to achieve universal clean energy
access. Governments can take four decisive actions to lower
upfront costs: (i) reduce balance of system (BOS) costs; (ii)
eliminate taxes and tariffs on clean energy devices; (iii) reduce
subsidies on fossil fuels and subsidize part of the upfront and
operation costs; and (iv) promote entrepreneurship and income-
generating activities by the new end-users of these energy
services.
On average, component costs amount to roughly 50% of the
cost of the nal clean energy device, with the balance of system
(BOS) accounting for the remaining 50%.7 Opportunities for near-
term reductions of more than 50% in BOS by simply scaling up
and implementing best practices have been reported in some
markets (Bony et al., 2010). Many of these soft cost reductions in
BOS can be implemented via smart policies that encourage
standardization of equipment and eliminate inefciencies in
business practices, as well as development of local supply of
technical and managerial expertise.
Initiatives to reduce taxes and tariffs on solar goods can also be
part of the solution set. A straightforward policy option is to lower
or abolish taxes and duties on a clearly-dened subset of clean
energy products. These tax breaks on energy systems could be
coupled with favorable tax policies on equipment targeted to
specic commercial use of energy. For example, it could entail
reducing tariffs on welding machines for a small microenterprise
using electricity for welding. The negative impact on the govern-
ment budget can be offset by commensurably reducing subsidies/
increasing taxes and levies on fossil-fuel generators. This policy
offers the added advantage of further eroding the upfront cost
advantage that kerosene has on clean energy generators today.
We will come back to the issue of fossil fuel subsidies in the last
section of this article.
Beyond reductions in assembly costs and policies on taxes and
tariffs, there can be a strong case for temporary subsidies to meet
part of the initial costs of achieving energy access. Output-based
subsidy programmes aimed at partially covering the purchasing
costs of clean energy systems have proven highly effective in
scaling up competitive clean energy solutions. Under the Biogas
Support Programme in Nepal, for example, a subsidy of about 30%
was available for covering 30% of plant costs, while 20% could be
contributed by the user in-kind (e.g. labour or locally available
7
In the case of a Solar Home System (SHS), the BOS represents everything
except the module itself: mounting and racking components; inverters; wiring;
installation labor; nancing and contractual costs; and in some mature markets,
permitting and interconnection.
90 Y. Glemarec / Energy Policy 47 (2012) 8793
construction materials). The remaining 50% was supplied through
cash contributions from users (UNDP, 2011).
Last, but arguably most importantly, the promotion of com-
mercial use of energy can enormously enhance rural development
benets and increase the long-term affordability of energy ser-
vices by new end-users. A recent UNDP/AEPC evaluation (Legros
et al., 2011) of the impacts of mini-hydropower systems installed
by Nepals Rural Energy Development Programme found that the
direct benets attributable to electricity access amount to about
USD 150 per year per household. The study estimates that
initiating a productive activity using newly available electricity
can produce an additional USD 912 for a household. Similar
impacts of promotion of productive uses of energy have been
reported in other locations (Yadoo and Cruickshank, 2012).
A clear conclusion is that skills enhancement to support the
development of income-generating activities should be a key
component of off-grid renewable energy programmes to increase
their affordability and adoption rate, and their impact on
economic growth (UNDP, 2012; Gurung et al., 2011; Yadoo and
Cruickshank, 2012).
3.2. Increasing access to nancing for the poor
While the options described above can reduce the life-cycle
costs of decentralized energy systems, upfront cost will continue
to be an issue for the poorest energy consumers. About 2.7 billion
people lack access to basic nancial services (United Nations
Secretary Generals Special Advocate for Inclusive Finance for
Development, 2011). A similar number rely on solid fuels to meet
their basic needs (IEA, UNDP and UNIDO, 2010). This is not a
coincidence. Given their high upfront cost, clean energy technol-
ogies can be an expensive proposition for most poor households
in the world. For example, a household biogas digester (approxi-
mately USD 300700) can account for more than a full-year of
income for the poor.
Even with a capital subsidy of 30%, the upfront costs of a
residential biogas digester can still exceed by an order of
magnitude the upfront payment capacity of poor households.
Access to nancing adapted to the cash ow proles of poor
households will therefore be a key enabler for scaling up clean
energy markets. Five principal market driven models exist to
provide upfront costs: (i) dealer/supplier credit-based sales; (ii)
consumer credit through commercial banks; (iii) consumer credit
through micronance institutions (MFIs); (iv) fee-for-service
models where the equipment remains the property of the service
provider; and (v) public sector-operated revolving fund credit
schemes.
The choice of the most suitable model to provide upfront
nance will depend on the maturity of the banking sector and the
socio-economic conditions of the targeted beneciaries. In loca-
tions where the private sector is non-existent, government-led
models such as public sector-operated revolving fund credit
schemes might be the preferred option. In countries with mature
micronance markets, consumer credit through MFIs could be the
most appropriate solution in the near future (UNCDF/UNDP,
2011). MFIs are focused on expanding nancial outreach to the
poor, and therefore have unrivalled knowledge of, relationships
with and access to low-income consumers. Coupled with grant
subsidies when applicable, the size of MFI loans is theoretically
appropriate for all but the most expensive clean energy systems
for the poor.
Despite this apparent match between MFIs and clean energy
services, the availability of energy product loans remains rela-
tively limited (IFC, 2010; IEA, 2011). One reason is that MFIs
typically use short maturities (of 612 months). The better meet
the cash ow proles of the poor, new credit modalities with
longer maturities might be required. Another key reason why
MFIs have yet to embrace this new business opportunity is that
they are poorly equipped to appraise clean energy loans for the
poor. The rst set of experiences with clean energy loans has
shown higher default rates than with traditional micronance
(UNCDF/UNDP, 2011). Much of this arose from technology failure
(the cheapest RE products on the markets were often cheaply
made) and the understandable reluctance of clients to pay for
faulty systems or their incapacity to reimburse loans in the
absence of the expected energy savings/increase income.
3.3. Removing non-economic barriers
While the price and payment terms are important factors,
experience shows that even well designed nancing schemes will
not be enough to promote widespread adoption of clean energy
systems. A number of complementary informational, institu-
tional, regulatory, and behavioral instruments will be required
to remove non-economic hurdles. Four instruments seem applic-
able in most situations: (i) clear policy statements and targets; (ii)
consumer education and community participation; (iii) standar-
dization of equipment; and (iv) research and development.
A UNDP review of 17 initiatives on energy access for the poor
in the Asia-Pacic region concluded that those that were able to
achieve a signicant expansion benetted from a strong commit-
ment from their national governmentsa commitment reected
in policy documents and supported by budgetary allocations
(UNDP, 2011). Conversely, an uncertain policy environment can
present a bottleneck to expansion. In Sri Lanka, a project to
commercialize solar home systems (SHS) faces challenges as a
result of the governments stated policy to extend the national
grid to at least 95% of the population by 2015 (UNDP, 2011).
Although the policy itself is laudable, many un-electried villages
are now uninterested in implementing off-grid schemes and
investing in SHSs because of the expectation of grid electrication
in the near future. The risk of arrival of grid electricity within the
repayment period can also prove a major deterrent for both
nanciers and technology providers to enter the market.
Uncertainty about whether nancial support from government
for specic clean energy opportunities will continue can also
result in investors being reluctant to invest or demanding higher
returns to compensate for this risk. A recent survey of investors
(UNEP, 2012) found that the most powerful incentive mechanism
for renewable energy deployment in developing countries was
the establishment of clear national targets for renewable energy.
Given the crucial importance of promoting productive uses of
energy by new end-users, these national energy access strategies
and targets should be embedded into national development
strategies. In addition, experience shows that establishing institu-
tions dedicated to energy services for the poor can facilitate the
implementation of these strategies and targets (UNDP, 2011). For
example, the Alternative Energy Centre in Nepal, the Renewable
Energy Authority in Kenya and the Energy Regulatory Commis-
sion in Bangladesh are dedicated to the effective realization of
national energy access targets.
Besides the existence of a clear national policy, the experience
of the rst generation of market-driven projects for energy access
highlights the importance of raising awareness, developing the
skills and closely involving prospective customers. In the conclu-
sion of a review of mini-hydropower development in Nepal,
Sovacool et al. (2010) commented: Spreading social awareness,
promoting community ownership, molding efcacious regulations,
minimizing corruption, addressing poverty, improving institutional
capacity, these are the enduring challenges, and until they are
targeted with the same rigour that engineers seek to design a dam,
the hydropower potential of Nepal will remain just that. To create
 Y. Glemarec / Energy Policy 47 (2012) 8793
sustainable energy markets, national and local government bodies
and civil society organizations will need to directly intervene to
create demand through awareness-building, training, demonstra-
tions and piloting.
Quality control will also play a critical role in the adoption of
clean energy devices by communities. Sub-standard performance
will cause a general decline in demand for clean energy systems
and, as discussed earlier, discourage nance institutions from
entering the clean energy market because of the high risk of loan
defaults. To address this, public policies can assist in reducing
technological risks by establishing some standards and regulating
the quality of the devices produced and marketed. Supplier buy-
back or maintenance guarantees for large systems (e.g. efcient
stoves for institutions) can also reduce the risk of technological
failure. However, such guarantees are of limited availability and
can be costly.
Research and development grants may be required to cover
the costs of research, product design and market-testing of clean
energy devices that are suited to the unique household energy
usages of each location. Communities in which people prefer to
squat for cooking, for example, will require different modern cook
stove designs than communities in which people cook standing
up, or cook indoor versus outdoor. In cold localities, combining
cooking and heating systems will accelerate adoption of efcient
stoves.
4. Raising funds for energy access
4.1. The role of public nance for energy access
The rst generation of projects has shown that achieving
universal access to clean energy is possible through innovative
publicprivate partnerships, but that signicant investment in
capacity development and market creation policies are initially
required to provide energy access to the poor. Public funds can
represent a signicant portion of the overall costs of decentralized
energy access investments, especially in the initial stages.
In a study of two rst-generation projects for micro-hydro-
power and improved cooking stoves in Nepal, UNDP (2012) found
that funding from public sources played a very dominant role
early on (well over 90%), much of which was dedicated to
investment in common capacity development goods such as
research and development, planning, policies and regulations,
and community mobilization (56% of total programme costs for
the micro-hydropower programme over the period 19962006;
68% for the improved cooking stoves programme). The share of
public nance gradually declined to about 50% at a later stage and
is expected to make up less than 40% in the future.
The 2011 World Energy Outlook (IEA, 2011) reaches similar
conclusions on the importance of public funding for nancing
energy access for all. To provide the USD 48 billion per year
needed for universal access, IEA estimates that around USD 18
billion per year is needed from multilateral and bilateral devel-
opment sources, USD 15 billion per year from domestic budgets in
developing countries and USD 15 billion from the broad range of
actors that form the private sector.
These ndings are consistent with the development of rural
electrication programmes in industrial countries. According to a
Congressional report on the history of rural electrication in the
USA (Department of Agriculture, 1982), the US Rural Electrica-
tion Department, which was established in 1935, took over 30
years until the late 1960searly 1970s to reach the stage where it
had developed sufcient nancial strength to obtain a portion of
their capital needs from private sources. Technological advances,
energy market liberalization and the emergence of new business
91
models have not lessened the need for signicant and sustained
investment in market creation for rural energy access.
4.2. Possible additional sources of public nance for energy access
Even with a strong focus on market development and public
private partnerships to catalyze private investment, the issue of
nancing for universal energy access ultimately boils down to
how to increase public and alternative nancial resources in order
to meet initial capacity development and market creation costs.
This section summarizes the various options under three main
categories: (i) international public nance for development and
climate change; (ii) domestic budget contributions; and (iii)
carbon nance.
For the rst source, international public nance, the share of
development assistance to the energy sector declined from over
USD 15 billion (in 2009 US dollars) in 1980 to approximately USD
7 billion at the end of the 1990s, before slightly increasing back to
USD 9.1 billion in 2009. Furthermore, less development nance
seems to be channeled into the energy sectors of the countries
with the lowest levels of energy access (Gualberti et al., 2012).
While development nance would not be enough to provide the
annual investment of USD 48 billion required to achieve universal
modern energy access by 2030 (IEA, 2011), a reprioritization of
the energy sector in development assistance to the levels of 1980
and a better targeting of countries with the lowest levels of
energy access would go a long way to meet this goal.
Despite present scal constraints, climate change nance is
expected to grow signicantly in the coming decade and comple-
ment development nance for energy access. The UNFCCC Copen-
hagen Accord (December 2009) and Cancun Agreement
(December 2010) have committed developed countries to jointly
mobilizing USD 100 billion per year by 2020 to support climate
change mitigation and adaptation activities in developing coun-
tries. The funds for these activities are expected to come from
public and private, bilateral, multilateral, and alternative sources
of nance.
For the past 20 years, the Global Environment Facility (GEF)
has been a major nancing source for market creation projects for
clean energy access. In December 2010, at the sixteenth session of
the Conference of the Parties (COP 16) to the UNFCCC in Cancun,
the decision was made to establish a new global climate fund, the
Green Climate Fund (GCF). The governing instrument of the fund
was approved at COP 17 in Durban in December 2011. The GCF is
expected to support a number of innovative programming
mechanisms, such as NAMAs and sector-wide approaches. By
enabling governments to aggregate a large number of small-scale
energy access projects within a single umbrella initiative, GCF-
supported sector-wide approaches could prove critical to scaling
up energy access efforts.
The UN Secretary General has launched the Sustainable
Energy for All initiative which aims to scale up several multi-
lateral and bilateral programmes for energy access for the poor.
The International Energy and Climate Partnership Energy
known as Energy which was launched in Oslo in October
2011 is part of these efforts and could lay the groundwork for
developing such future initiatives under the GCF. Energy is built
on the premise of utilizing sector-wide approaches together with
performance-based payments in order to facilitate increased
access to energy and increased energy efciency. Its overall
objective is to develop commercially viable renewable energy
and energy efciency business models to catalyze private nance
for universal energy access.
Energy will follow a three-step approach to country engage-
ment: Phase 1 will support strategic planning activities, including
nalizing low-carbon and energy sector strategies; Phase 2 will
92 Y. Glemarec / Energy Policy 47 (2012) 8793
focus on encouraging technological innovation, creating a con-
ducive investment environment, piloting new nancing modal-
ities and leveraging market expansion; and Phase 3 will provide
payments and incentives against veried results in expanding
access to new users and communities. This three-phase approach
fully acknowledges the importance of readiness and market
creation to catalyze private nance for affordable, adequate and
sustainable energy access for the poor.
The second source of public funds for sustainable energy
access may come from direct budget contributions in developing
countries. Irrespective of their commitment to universal energy
access, governments in developing countries will be hard pressed
to increase by several multiples their current contribution in this
area, which would likely be required to provide universal energy
access by 2030. Besides energy access, developing countries have
enormous challenges in the areas of education, health, social
services, food and human security, basic infrastructure, and
disaster risk management.
Subsidy reforms hold the promise of freeing up resources for
energy access in many developing countries. Such reforms focus
on reducing, eliminating or redesigning subsidies that promote
inefcient and often harmful use of resources in a number of
economic sectors, including energy, agriculture, sheries, forests
and water. Conventional energy subsidies are the single most
important barrier to the growth of clean energy technologies
today. The IEA estimates global fossil fuel subsidies at USD 312
billion in 2009, compared to only USD 57 million for clean energy
(IEA, 2011). The phase-out of the most detrimental subsidies and
their reinvestment in clean energy initiatives could signicantly
contribute to meeting the additional investment costs for uni-
versal energy access.
Although a large body of literature (OECD, 2005, 2010;
Bredenkamp and Pattillo, 2010; Laan, 2010) shows that subsidies
mostly benet the wealthy, indiscriminately removing them can
hurt the poor. Efforts such as those of the Islamic Republic of Iran
to remove extremely high energy subsidies (USD 40 billion to USD
100 billion a year, relative to oil prices) without disproportionally
affecting the poor illustrate possible approaches to address the
social concerns of removing subsidies (Glemarec, 2011).
The third source of public funds for sustainable energy access
is carbon nance, which despite the current uncertainty regarding
the long-term future of the Kyoto Protocol, is likely to play an
increasingly important role in nancing the transition to a low-
emission society. The report from the UN Secretary Generals High
Level Advisory Panel on Climate Change Financing (UN AGF, 2010)
recommends that carbon markets should be further strengthened
and estimates that, globally, the carbon offset market could lead
to USD 120150 billion per year of investment in low-emission
technologies by 2020.
The potential of carbon nance for universal energy access is
signicant. For example, improved cooking stoves save 5070% on
fuel compared to traditional stoves (Brinkmann and Klingshirn,
2005; Gibbons et al., 2009; Limmeechokchaia and Chawana,
2006). In places where non-renewable biomass or fossil fuel
(e.g. coal in South Africa) is used for cooking, improved stoves
can signicantly reduce CO2 emissions (1 tonne of CO2 per year,
according to a conservative GIZ estimate). In such cases, carbon
nance could constitute an additional source of revenue for
improved cooking stove products, and be used as a substitute to
public subsidies to lower the retail price to below the cost of
production.
Unfortunately, the need to comply with rigid CDM rules on
project baselines and additionality, validation, registration, mon-
itoring and verication can make the transaction costs of CDM
projects prohibitively expensive for small-scale energy access
projects. As of January 2012, only 18 CDM projects designed to
increase or improve energy access for households had so far been
registered and 15 were at the validation stage (UNEP Risoe
pipeline analysis and database).
Nevertheless, new potential carbon nance programming
modalities under the CDM, such as Programmes of Activities
(PoAs) and standardized baselines for sector-wide application,
are opening new avenues for carbon nance-supported energy
access investment. The recent November 2011 decisions by the
CDM Executive Board to develop standardized baselines will
enable projects included in a positive CDM project list of a
developing country (e.g. certain cooking stove technologies, solar
PV, mini-hydro, etc.) to be considered automatically additional,
substantially reducing the upfront transaction costs of CDM
projects. The creation of PoAs, which aggregate multiple small/
micro-scale projects under one policy or programmatic umbrella,
should help reduce the individual transaction costs for energy
access initiatives. As of January 2012, 58 PoAs had already been
designed to increase or improve energy access for households (3
registered and 55 at the validation stage).
This seems to indicate that PoAs are meeting expectations in
terms of reduced transaction costs for small and micro scale
activities, and have become an appropriate modality for a number
of universal energy projects that were not realised under the
project-based CDM modality. PoAs could also be used as a starting
point to scale up clean energy access efforts as Nationally
Appropriate Mitigation Actions (NAMAs), opening new nancing
opportunities under the UNFCCC framework. An analysis con-
ducted by South Pole shows that a number of existing PoAs could,
integrated with a strong policy component, potentially be scaled
up to NAMAs (South Pole, 2011). Such NAMAs would combine
carbon nance with public resources for policy development to
catalyze private nance for clean energy access. However, no
clear consensus has been reached yet on the exact nature of
NAMAs under the UNFCCC negotiation process. Furthermore,
large programmes/sectoral approaches might remain at odds with
the need to customize clean energy devices, such as improved
cooking stoves, for meeting the needs of a heterogeneous clientele
(Simon et al., 2010).
Besides transaction costs, another critical issue with the CDM
is its uneven regional distribution to date. According to the UNEP
Risoes January 2012 pipeline data, China and India will account
for 70% of the emission reductions under the CDM by December
2012). A key challenge to leverage new carbon nance for
universal energy access will be to ensure that the shift from
project-based approaches to scaled-up approaches such as pro-
grammatic CDM does not worsen the existing imbalance with
respect to regional access to climate nance.
Dedicated programme development facilities will be required
to assist project proponents in under-represented markets in
accessing carbon nance as well as to develop sector-wide
approaches for energy access, combining domestic and interna-
tional, public and private, grant and non-grant instruments. A key
lesson from the experiences with the CDM and vertical funds such
as the Global Fund against AIDS, Tuberculosis and Malaria
(GFATM) is the need to ensure adequate capacity development
from the onset to enable countries access to these resources (Bird
et al., 2011).
5. Conclusion
Given the limited availability of public nance, it is essential to
catalyze private nance for clean energy access. Furthermore, the
private sector not only provides additional nancial ows but
often possesses key skills and knowledge required to scale-up off-
grid clean energy. The rapid uptake of mobile phones highlights
 Y. Glemarec / Energy Policy 47 (2012) 8793
the transformational role that the private sector can play to
provide decentralized services on a commercial basis in develop-
ing countries. However, there are fundamental differences
between decentralized clean energy and mobile telephone mar-
kets. Developing a new clean energy market involves considerable
uncertainty and large nancial outlays for research, development
of policy and regulations, education of consumers, and promotion
of new income generating activities to increase the affordability
of energy services and promote economic developmentall of
them market-building common goods, measures for which
private nance is scarce. Grant-based support for these functions
will be necessary.
Lessons gained from rst generation market development
projects in Africa and Asia show that these capacity development
and market-building activities account for a signicant portion of
the overall costs of clean energy access programmes, especially in
the initial stages. Despite mounting scal constraints facing
governments worldwide, the emergence of new programming
modalities and strong momentum in support of subsidy reforms
offers opportunities to leverage signicant public resources from
international public nance, domestic budgets and carbon nance
to achieve universal energy access by 2030.
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