26 April, 2021 ARE article

Smart Financing in the DRE Sector – The Building Blocks to Financing Rural Electrification

Asanstys Systems

Decentralised renewable energy (DRE) is estimated to be the least-cost electrification option for more than half of all connections needed to provide sustainable electricity for all in emerging markets by 2030. Indeed, DRE provides rural and peri-urban communities with reliable electricity services to power lives and businesses, doing so in a way that catalyses socio-economic development and local green job creation, that is future-proof and that is effectively addressing climate change.

Despite often challenging market conditions, this strong value proposition means that to date at least 470 million people rely on DRE. This is an astonishing achievement, but it is not enough. Hundreds of millions of people are still not electrified, and the global population is booming, meaning many more electricity connections are and will be needed, fast.

It is heartening to note that building on its proven ability to deliver electrification rapidly, qualitatively, sustainably and competitively, DRE is – at last –being considered as a central electrification avenue in any credible (national) rural electrification plan and their financing instruments.

To take advantage of the growing momentum and unleash the massive electrification potential of DRE, ARE encourages governments and development partners to think big, act fast and build on the following basic blocks, to actually put the world back on track to achieve universal electrification and all the good that derives from it.

The first building block to scale DRE electrification is finance itself. It is generally recognised that the amount of public investment going to electrification is well below what is actually needed. Therefore, it is important that public investments are both vastly increased as well as used in a way that leverages or crowds in private investment.

Second, attracting copious private investment requires an adequate political and regulatory framework. This means that the overall business and investment environment needs to be welcoming and stable, that the power sector is designed in a way that incentivises private capital to step in, and that risks related to DRE investment are eliminated, reduced, or mitigated. Ultimately, the key for governments is to determine the core rules of the game, and then let the private sector harness its creativity to operate freely within those rules.

In this regard, the Clean Energy Mini-Grid Development Guide developed by ARE, UNIDO, AfDB, Inensus and AMDA outlines the various forms and models that public-private cooperation could take and reflects on the outcomes of policy decisions on mini-grid deployment.

The third building block concerns creating the enabling environment to catalyse markets. This includes many different activities, ranging from capacity building over fostering innovation to promoting and enabling business partnerships. Being the leading DRE business association, ARE plays a critical role as market catalyst and invites governments and development partners to work together to implement concrete programmes to that end.

In this regard, ARE is delighted to announce our recent MoU with the Association Interprofessionelle des Spécialistes des Energies Renouvelabes (AISER Benin) focused on strengthening DRE market development in Benin. Such concrete activities have a strong impact and are necessary to allow partnerships to blossom, and thus electricity infrastructure to get built.

In conclusion, universal electrification is both necessary and possible, and the DRE sector will play a vital part in it. Beyond sustainable electricity, DRE electrification also catalyses job creation, climate change mitigation, as well as creation or expansion of local businesses in other sectors that require reliable electricity.

With many great initiatives ongoing, now is the time to scale up in order to reach our targets. ARE calls on the private sector and all stakeholders on the ground to join the ARE family and stands ready to partner with both public and private sector players that share our vision for a green, equitable future.

-David Lecoque, CEO, ARE