A presentation by IIED senior researcher Sarah Best of the International Institute for Environment and Development (IIED) at European Development Days 2016 on 15 June 2016. The presentation on 'Unlocking climate finance for decentralised energy access' was made in a session on 'Current research and practices on how climate finance can serve the energy needs of the poor'. The session presented research findings, debated the role of climate finance in filling the gap for energy access, and suggested ways to reform and improve climate funding mechanisms.

1. Unlocking climate finance for decentralised energy access
IIED and HIVOS Working Paper, June 2016

2. Note: Climate finance figures are based analysis of the Climate Funds Update (CFU) database, which covers public finance for all major international climate funds
Climate finance allocation for energy

3. Decentralised energy access: finance needs vs allocation
The estimate of USD 23 billion is from World Energy Outlook, IEA 2011

4. INVESTMENT NEEDS
(USD BILLION/YEAR)
Total needs 48
Current (in 2009) 9.1
Business-as-usual projections 14
Additional financing needed 34
Electricity
On-grid 11
Mini-grid 12.2
Off-grid 7.4
Cooking
LPG 0.9
Biogas systems 1.8
Advanced biomass cookstoves 0.8
Total additional financing needed for decentralised energy
(electricity and cooking)
23
Additional financing needs for grid-based and
decentralised energy
Source: IEA 2011

5. Who needs finance and for what?
• Energy users
e.g. to pay for products, equipment, maintenance
• Energy providers
e.g. R&D, feasibility analysis, piloting, buying inventory, business growth
• Financial institutions
e.g. concessional finance to channel to providers, risk guarantees
• Governments
e.g. policy, regulatory and market development, capacity-building

6. Status of climate finance (CFU database): Of 35.3 bn
USD bn pledged, 14.1 bn has been approved

7. Mitigation: focus on middle income countries via loans

8. Clean Technology Fund channels largest share of
mitigation finance

9. Status of 5.6 bn climate finance allocated to energy…

10. 40% of climate finance flowing toward energy projects

11. Distribution of energy finance: preference for loans to
utility-scale projects in middle-income countries

12. Utility-scale solar, wind & geothermal receive largest share

13. Distribution of grid-based and decentralised energy supply
projects in low-income countries

14. Key barriers to flow of international public climate
finance to decentralised energy access
General barriers
• High risks (perceived, actual)
• Investor returns and short-termism
• Investment size and transaction costs
• Policy and regulatory environment
• Shortage of business models or
quality plans
Climate finance barriers
Preference for loans versus grants
Approaches of financial
intermediaries
Priorities of funds’ results
frameworks

15. Innovation on the ground: lessons from
Bangladesh and Nepal
• High-level policy enablers
• Special agencies to aggregate and channel funds to small-scale
(eg IDCOL, AEPC)
• Holistic, market-building approach
• Mix of financing instruments for users, providers & financial
intermediaries
• Regulatory push by central banks

16. Recommendations
1. Improve targeting of Climate Funds to decentralised energy access in low-
income countries
• Map funding priorities versus needs
• Earmark funds for decentralised energy
• Adjust design features – investment criteria, risk appetite, results framework
• Get the right balance of loan and grant funding
• Channel finance through entities with capacity to fund small-scale eg special
agencies

17. Recommendations
2. Strengthen national enabling environment
• Use climate finance to support policy and regulatory reforms
• Strengthen institutions for managing climate finance in low-income countries
3. Fill knowledge gaps
• Research and communication for stakeholders to understand finance gaps,
needs and sources
• Lesson-sharing between countries on innovative mechanisms and enablers

18. Neha Rai, IIED
neha.rai@iied.org
Sarah Best, IIED
sarah.best@iied.org
Eco Matser, Hivos
eco.matser@hivos.org
Contacts
References
Rai, N, Best, S and Soanes, M (2016) Unlocking
climate finance for decentralised energy access.
IIED, London.
http://pubs.iied.org/16621IIED.html?c=energy