Energy access is a prerequisite for economic development and human well-being. In fragile and conflict-affected countries, many of which are located in sub-Saharan Africa, energy access remains shockingly low. Low energy access levels, conflict, and insecurity are often intertwined. This situation diminishes the full potential of the more than 600 million people in these countries who lack access to electricity.
Expanding energy access requires significantly more investment than the current level reaching these countries. Consider that only 2% of the $3 trillion invested globally in clean energy in recent years went to communities across the entire African continent. Expanding energy access calls for proactive support from both the public and private sector to ensure it is carbon-free. Through greater access to clean energy, communities in fragile countries can benefit from electrification while leapfrogging over legacy fossil fuel-based energy systems and its problems; from expensive, recurring fuel costs to greenhouse gas emissions that increase climate risks.
The private sector can and should begin playing a larger role in helping achieve universal access to electricity in fragile countries. Encouragingly, the fact that a growing number of companies and investors have begun to prioritize both the environmental and social impacts of their businesses presents an opening to weave support for clean energy access into corporate impact strategies.
This is why Energy Peace Partners (EPP) and Sustainable Energy for All (SEforALL) recently convened an online gathering of thought leaders to examine the nexus between energy access, corporate ESG, and state fragility, and to identify ways to address the clean energy finance gap in the hardest-to-reach markets. The conversation produced three main insights about how to better tap the private sector to expand clean energy access as well as how instruments like Peace Renewable Energy Credits (Peace RECs), developed by EPP, fit into the picture.
Insight 1: The necessity of expanding private sector financing in fragile countries
Energy access challenges in fragile countries will likely persist without greater financing from the private sector. “Presently, the private sector represents a much smaller share of investment in the sub-Saharan Africa context than elsewhere,” commented Vikram Widge of Climate Policy Initiative (CPI). “We must create stronger incentives for companies and private investors to contribute to this finance gap overall, but especially to expand the level and share of private sector financing in fragile states where there is tremendous need and significant opportunities.”
Even with greater incentives for private sector investors to engage in energy access and wider climate investment opportunities in fragile states, investors will likely pursue a range of investment opportunities. “Varying levels of familiarity and risk tolerance among investors and companies with operations across fragile countries stymies private investment in fragile countries,” shared Magdi Amin of African Renaissance Partners. “It is becoming clearer that addressing this finance gap will require a mosaic of climate finance solutions.”
Insight 2: The opportunity to combine environmental and social impact in clean energy procurement
Historically, companies could only differentiate between clean energy procurement options based on the technology type, location, vintage, and capacity. Companies now want a broader menu of clean energy procurement options, including those that prioritize positive social impact. “Companies seek new clean energy procurement options that help them both reduce the emissions they report in their annual climate-related disclosures and deliver meaningful social benefits,” commented Laura Vendetta of 3Degrees. “In other words, these corporate clean energy buyers want to optimize their procurement for environmental and social impact. They also want to get recognition for implementing this type of ‘next generation’ procurement strategy.”
By combining clean energy with positive social impact in standardized market instruments like Peace RECs, companies can make progress toward their internal goals through the same transactions. “When companies procure clean energy through market instruments like Peace RECs, this generates critical additional revenue that boosts the bankability of new clean energy projects as well as linked community projects like public street lighting,” said Doug Miller of EPP. “Peace RECs represent part of the mosaic of solutions that will chip away at the clean energy finance gap because they check the “E” and “S” boxes among corporate impact professionals and ESG investors. It will also become easier soon to aggregate and streamline Peace REC transactions when EPP launches the Peace REC Aggregation Facility (PAF).”
Insight 3: The key role of incentives to expand private sector support for energy access
While the availability of solutions like Peace RECs enable companies and investors to support energy access in fragile countries, this availability alone is insufficient to drive transactions and investments. Incentives also matter. “Market instruments offer one tool in the toolbox to facilitate transactions that activate clean energy investments,” concluded Luc Severi. “However, we cannot assume this market will take off on its own. This is why it is so important that regulators and market stakeholders find more ways to increase incentives for companies and investors to contribute to scaling clean energy access for maximum social benefit in fragile countries.”
These expert insights suggest there is an opportunity for corporate clean energy procurement to play a more powerful role in addressing energy access. As more companies procure clean energy from projects in un-electrified and under-electrified communities, they can help drive investments that help more communities gain clean energy access. Corporate procurement thus offers a lever to increase the share of private sector contributions and accelerate financing for clean energy in fragile countries.
EPP will continue to share insights from upcoming similar discussions about how to bridge the clean energy finance gap with stronger incentives for companies and ESG investors, including the Leapfrog Alliance, a nonprofit campaign that aims to better align existing corporate sustainability incentives with expanding energy access.