The UNDP has pledged to back the creation of seven groundbreaking financial aggregation models that aim to promote different clean energy solutions such as off-grid solar, mini-grids, e-mobility, and clean cooking in several countries in East Africa.
The UNDP Climate Aggregation Platform Financial Innovation Challenge, a worldwide invitation for submissions launched in July 2022 by the Climate Aggregation Platform (CAP), which is a UNDP project focused on expanding financial aggregation for small-scale, low-carbon energy assets in developing countries, has competitively picked these solutions as the winners. The CAP, funded by the Global Environment Facility, is a key initiative of UNDP’s Sustainable Energy Hub, which aims to facilitate the creation and implementation of innovative business models and financial mechanisms to speed up energy access and the adoption of clean energy.
The UNDP intends to encourage the creation of innovative financial aggregation models and structures that can boost accessibility and reduce the cost of financing for low-carbon energy in East Africa through this innovation challenge. This initiative will aid in bridging the investment gap and ultimately contribute to achieving universal energy access.
Riad Meddeb, Director of UNDP’s Sustainable Energy Hub stated that .“we are excited to support the development of such innovative and pioneering financial solutions for clean energy,” he also expressed that “Increasing energy access is critical to advance socio-economic development and progress on the Sustainable Development Goals in East Africa. 242 million people, close to half the region’s population, do not have access to electricity. We need to think outside the box to close this gap—business as usual won’t do. Developing new ways of financing clean energy is critical to ensure that everyone can access affordable, reliable energy and the opportunities it brings.”
According to recent findings, the most cost-effective and rapid solution for closing the energy access gap in Africa by 2030 is through the implementation of distributed renewable energy solutions. Unfortunately, the scaling of these solutions necessitates significant upfront investments from both the public and private sectors, which are presently insufficient due to several obstacles, including perceived investment risks.
A recent UNDP study indicates that financial aggregation has considerable potential in facilitating these sizeable upfront investments, which are required for the expansion of distributed renewable energy. It can aid in minimizing the mismatch between investor requirements and the funding needs of distributed renewable energy solutions, thereby increasing investments in this sector. However, despite its potential, there are only a few instances where financial aggregation has been successfully implemented. Financial aggregation instruments are intricate and require a supportive environment for successful execution. The market is currently in its early stages, and several obstacles need to be addressed to enable the widespread adoption and scaling of financial aggregation.
Through the CAP Financial Innovation Challenge, UNDP seeks to support solutions at the design stage that can lead to financially closed transactions in East Africa soon. The goal is to create innovative financial aggregation models and structures that will pave the way for the expansion of renewable energy.
UNDP received numerous applications from various countries around the world, proposing diverse and intriguing innovations that target different energy sub-sectors and countries in East Africa. Although applicants from any country were eligible to apply, the selected solutions will be designed for deployment in one or more developing countries in East Africa, with a particular emphasis on Rwanda and Uganda, the CAP’s two pilot countries.
UNDP’s Climate Aggregation Platform Financial Innovation Challenge identified the following seven solutions as the winners. Each solution employs a unique financial aggregation approach to unlock new sources of financing for the clean energy sector, including climate finance. These solutions address various sub-sectors such as off-grid and on-grid solar, mini-grids, productive use appliances, e-mobility, and clean cooking, and are deployable in various East African countries, including Rwanda, Uganda, Kenya, Tanzania, Malawi, Ethiopia, Madagascar, and Mozambique.
- ‘AI-enabled financing to scale energy access’, by Nithio: Nithio will adapt its data-driven blended-finance model – a sustainable, risk-informed approach to finance aggregated receivables for the off-grid solar sector – to determine how it can be best tailored to the Rwandan market. [Target country: Rwanda]
- ‘A digital platform to bundle debt and results-based payments with climate finance’, by 4R Digital: Through its Carbon Value Exchange platform, 4R Digital will connect micro-small clean energy products with the Voluntary Carbon Markets – enabling aggregation of hundreds of thousands of clean energy device users. 4R Digital will explore how to layer additional product financing opportunities on top of the carbon-related payments. [Target countries: Uganda, Kenya]
- ‘Carbon Credit Aggregator Platform’, by Mirova SunFunder: Mirova SunFunder will explore the feasibility of setting up a Special Purpose Vehicle (SPV) to aggregate the carbon rights of clean energy companies. Financial aggregation at the SPV level would enable a group of similar companies to attract the required funding for pre-financing their activities. [Target countries: Uganda, Rwanda, Kenya, Tanzania, Malawi]
- ‘E2W Africa, a financing platform for electric vehicles’, by PJ & Company: PJ & Company will develop a pioneering financing platform to provide both growth equity and small-scale asset finance for the electric vehicles sector in East Africa – Creating a founder-friendly finance instrument to help grow this asset-heavy industry. [Target countries: Uganda, Rwanda, Kenya, Tanzania, Ethiopia]
- ‘A platform for scaling up off-balance sheet receivables financing for off-grid solar’ by Solaris Offgrid: Solaris Offgrid will develop a platform to allow last-mile off-grid solar companies to sell pools of receivables, and partner funds to purchase these based on the investment criteria of debt providers – Aggregating receivables to allow debt funds to deploy larger amounts of capital. [Target country: Uganda]
- ‘Exploring securitization for mini-grid projects’, by Hypoport Africa: Hypoport proposes to introduce the concept of securitization and other innovative structured lending solutions for PAYGO solar assets in East Africa – To show that once payment data is structured and monitored effectively using state of the art data management, innovative structures can be introduced that will reduce costs of capital and improve the efficiency of PAYGO portfolios. [Target countries: Mozambique, Malawi, Rwanda, Kenya]
- ‘Powerblocks, a platform to accelerate clean energy access in emerging markets’, by Incharge Energy: Incharge Energy proposes to develop PowerBlocks, a Web3 platform to help increase the profitability and utilisation of distributed renewable assets in emerging markets through the financing and provision of productive use off-takers, initially via bitcoin mining, and using smart contracts to pool funding from crypto investors. [Target countries: Rwanda, Kenya, Tanzania, Madagascar.
Each of the selected innovators will receive an award of up to US$40,000 from UNDP to develop a Feasibility Study for their Innovative Financial Aggregation Structure or Model. Additionally, UNDP will promote these innovations both internally and to a wider audience across its network.
Source: UNDP
