Tuesday, May 15, 2012

Kiva Innovations: Financing for a cleaner, greener future

Energy drives every aspect of our lives. Lighting, refrigeration, hot water, and stoves are so pervasive that they almost fade from our daily consciousness. Yet, in many developing countries, an enormous fraction of the population has no access to sustainable energy.

This lack of access keeps people poor. Thus the term energy poverty.

Almost every daily task -- from preparing food to doing laundry to fetching water -- is made more time consuming by energy poverty. And extra time spent on these activities means less time for women to work, for kids to go to school, and for people to stop and enjoy their lives. This makes it impossible to address poverty reduction without first tackling energy inequality.

Modern forms of energy like electricity, natural gas, clean cooking fuel and mechanical power are absolutely necessary to jumpstart productivity across sectors, improve public health, lower transportation and transaction costs and open access to information technology. In short, these sources of energy lay the foundation for explosive economic and social growth.

So why no progress?

While the solutions sound deceptively simple (e.g. build electrical poles everywhere), the obstacles are many. Energy providers in developing countries face perilous financial shortfalls that limit their ability to reach the world’s poorest and most vulnerable. Existing country-specific investments are not sufficient to meet the needs of the 1.5 billion people worldwide who currently lack access to power.

Still, incentives are weak. Political will for energy expansion is in short supply, especially as glitches in existing infrastructure drain public funds. This suggests that significant funding for energy projects will need to be sourced internationally, but current donor-led international financing is not without its share of pitfalls. Liberia comes to mind (as discussed in my last post on clean energy), as does South Africa.

In South Africa, the government made “energy for development” a top priority of their post-Apratheid agenda. Together, politicians and international donors pioneered a multi-sector approach to address energy poverty by dramatically expanding grid access between 1994 and 2001. The initiative was hugely successful, increasing access from 36% to 70% by 2001.

But early success proved to be a double-edged sword. Eventually, ever-fleeting political support shifted to other projects and donor funding dried up, effectively cutting South Africa’s energy revolution short. Today, just 75% of the population has electricity. Meanwhile, aging generators underperform in cities and sit unused in rural areas. The majority of GDP funding for energy projects is used to simply maintain existing infrastructure. This sounds far from perfect, but South Africa remains a development darling in the energy sector and is actually one of the most electrified nations on the continent.

What about the other 25%?

They may be off the grid, but poor households need energy to power their lives. Alternatives for these families include kerosene lamps and biomass, charcoal and wood cookstoves -- all of which are unreliable, dangerous and expensive. Even in the United States, poor households tend to pay a substantially higher share of their disposable incomes to meet their essential energy needs. These expenses regularly exceed 20 to 30% of their weekly incomes, compared to 5 to 10% for richer households. Outside the U.S., it’s even worse.

In this environment, innovative mini-grid and off-grid solutions like small-scale solar and biodigesters offer price-competitive solutions to energy poverty. But financing for these solutions still requires sustained private investment to infuse over-burdened governments and fatigued donors.

To do its part, Kiva is partnering with companies like Barefoot Power, to help get affordable, renewable sources of energy, light and heat into the hands of more people. Barefoot, in particular, has found a way to distribute solar systems, lanterns and renewable batteries to poor segments of the population while creating jobs for micro-entrepreneurs to sell, install and maintain them.

Where does Kiva come in? We’re giving lenders the opportunity to fund loans for Barefoot’s distributors, providing startup costs and smoothing supply gaps at zero interest so that they can afford to bring energy to poor households in remote villages. Check our borrower Martin, fundraising a loan for $49,525 to buy and distribute solar lighting kits. You can help him out here.

Soon, we’ll be expanding this funding model to include end-consumer financing for clean energy cookstoves -- so stay tuned. We believe this type of specific, multi-level intervention has the potential to help our partners make money and help people at the same time. At scale, this business model has a real chance to bring modern energy to families who have lived in the dark for too long.

Ian Matthews is an intern on Kiva’s strategic initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science, and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with companies and organizations encouraging fair trade practices.

photos courtesy of  Lindenbaum, Barefoot Power, SELF