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With the world off-track to meet global goals, why are we continuing to delay critical finance for energy access?

For many countries, a strong recovery from the global pandemic will hinge on reliable energy access, something that most of us in developed countries take for granted.

Yet today, 789 million people worldwide have no electricity access whatsoever, and 2.8 billion – over a third of the world’s population – have no access to clean fuels or technologies for cooking.

Closing these gaps and achieving universal energy access by 2030, as called for by Sustainable Development Goal 7 (SDG7), will require significant investment. The IEA estimates USD 45 billion needs to be disbursed each year between 2020 and 2030 if we’re to achieve SDG7 targets.

Financing energy access is a two-sided problem. First, we need sufficient volumes of committed finance from the full spectrum of investors including development finance institutions, commercial banks, and governments. The second, more insidious, challenge is that this finance must be disbursed to initiatives and projects on the ground for it to have any impact.

Right now, both energy finance commitments and disbursements are nowhere near is the levels required to achieve universal energy access. A recent report by Sustainable Energy for All (SEforALL) and the South Pole tracked disbursements of development finance in twenty countries with the world’s highest energy access deficits over a five-year period. While USD 52 billion in finance was committed to these countries between 2013-2018 only USD 32 billion was disbursed.

The reality is that even if the world commits to provide the necessary volume of investment to meet SDG7, we wouldn’t close the energy access gap due to the slow and inefficient disbursement of these funds.

Funding disbursement delays are plaguing the energy sector and depriving millions of access to electricity and clean cooking solutions. In the countries we tracked, between 2002-2018 more than half of all energy finance commitments suffered from delayed disbursement, and fully 49% of funded projects either didn’t begin or ran behind schedule.

Now, as countries fall further behind in attracting the SDG7 finance they need, the cumulative lag in disbursements exacerbates chronic low volumes of committed finance. A combination of both project and related, non-technical barriers are causing these delays. These include shortcomings in energy project design, poor coordination between donors and other project stakeholders, and lack of consultation with proposed project beneficiaries.

More specifically, project design flaws compromise end-user uptake of energy solutions, hindering timely disbursement of project funds. This can occur, for example, when a project is designed without due regard to prevailing conditions in a host country’s energy market, such as local energy consumption preferences, when end-users lack awareness or knowledge about the proposed energy solutions, or when a project is designed without adequate provision for technical assistance to support deployment.

Poor administrative capacity and lack of coordination between project stakeholders are also frequently responsible for disbursement delays. For example, on-time disbursement is compromised when stakeholders aren’t fully aligned on the procurement procedures that need to be followed to efficiently purchase and deliver technical solutions.

Lack of access to local finance by end-users and businesses providing solutions also delays disbursements where projects depend on robust local financial markets to provide consumer and business credit.

Finance for energy projects needs to allow for more risk-taking. Donors should take on greater risk in their investments, providing risk mitigation to make it more attractive for private and local investors to come in and finance energy access for all.

National governments can also play an important role by providing strong policy frameworks to facilitate project implementation. They are also critical enablers of access to local finance through putting in place policies and programs that strengthen local financial markets. Streamlining administrative and regulatory processes to cut back on the red tape slowing down project developers will also accelerate progress.

Efficient disbursement of finance commitments for energy projects should be a principal goal of the energy sector and development community – regardless of how much finance is being committed. This is money that has been earmarked for projects that will lift people out of poverty and support their well-being.

Achieving universal energy access will be impossible without speeding up the disbursement of committed finance for energy projects. As COVID-19 continues to underscore the critical role of energy access in sustaining economic growth, now more than ever we need swift disbursement of energy finance.

[Southpole]

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