| Work Detail |
Energy service providers in Uganda struggle to access financing because financiers grapple with the concept of informed risk The energy access shortfall in Africa – which includes clean cooking – needs around $25 billion every year to achieve universal access by 2030 and the private sector is pivoting/changing to meet this ambition. An intriguing example of this pivot is how investment in private sector-led solutions in Uganda can help reduce biomass use from 85% in 2018/9 to 50% by 2024/5. But, access to finance remains one of the largest hurdles for private companies to deliver suitable energy solutions and for end-users to adopt them. At the same time that consumers struggle with affordability of energy assets and their ongoing cost of use, energy service providers contend with balancing product and service affordability, while trying to break even from a business point of view. Equity and grants appear to hold the highest share of financing into the clean cooking space, although there is considerable potential in other financing mechanisms Innovative business models such as pay-as-you-go or rent-to-own are proving effective in encouraging uptake and use of energy assets in Uganda while reducing the burden of upfront costs for the end-users. But this is not enough. Energy service providers (ESPs) need funding to enable: Market activation, Awareness creation, Business model development and enhancement, Innovation and adaptation, and Operations and maintenance, All while meeting national regulatory requirements. A diversified financing portfolio would enable an ESP to spread the risk of capital and operating cost while still giving it room to continue trialling and improve its business and product offering to meet the target market’s need. Exploring innovative finance mechanisms to help service providers create energy access in Uganda A new research paper by the Energy 4 Impact (Mercy Corps’ energy access platform) explores various finance mechanisms that would enable ESPs to deliver sustainable energy solutions to urban informal settlements in Uganda. While the Finance mechanisms for private sector-led energy access in urban informal settlements report does focus on clean cooking solutions, most of the insights presented in the paper can also apply to other energy solutions such as decentralised renewable energy and productive use of appliances in the context of urban informal settlements. Access remains low for ESPs due to challenges financiers face in taking informed risks “Financing mechanisms such as equity, debt, output-/outcome-based grants, crowdfunding, and carbon credits are reviewed through a clean cooking ESP lens. Equity and grants appear to hold the highest share of financing into the clean cooking space, although there is considerable potential in other financing mechanisms, such as carbon credits and output-based grants, which could substantially de-risk capital costs for ESPs. “Despite these opportunities, access remains low for ESPs due to challenges financiers face in taking informed risks. “Data and information gaps on clean cooking technologies, consumption patterns, and market conditions, limit their ability to accurately value clean cooking businesses,” reads the report. |
