This is a presentation by Sarah Best, senior researcher at the International Institute for Environment and Development (IIED), on unlocking public finance for decentralised energy access in Tanzania and elsewhere. The presentation opened the session on decentralised energy finance at the Money Where It Matters (MWIM) event, held in London from 7-8 December 2016. The purpose of the MWIM event was to reflect on our insights and explore further how financing mechanisms can more effectively channel resources to the local level, and identify opportunities to increase flows of finance to the local level in new contexts for development assistance and national investment. Participants at the event also agreed on outstanding questions that require further research on finance for and with local actors to achieve the effective use and management of funds to deliver climate resilient sustainable development. More details: https://www.iied.org/promoting-local-access-development-climate-finance

1. Unlocking public finance for decentralised energy access 1
Sarah Best
2016
Unlocking public finance
for decentralised energy
access
Sarah Best, Senior Researcher, IIED
7 December 2016, IIED Finance Forum

2. Unlocking public finance for decentralised energy access 2
Sarah Best
2016
Outline
1. Who needs finance and for what?
2. International climate finance & decentralised energy
3. Key barriers & solutions
4. Tanzania: Government and development finance for
decentralised energy
5. Final thoughts

3. Unlocking public finance for decentralised energy access 3
Sarah Best
2016
1. Who needs finance and for
what?
• Energy users
e.g. to pay for products, equipment,
maintenance
• Energy providers
e.g. R&D, feasibility analysis, piloting, buying
inventory, business growth
• Financial institutions
e.g. concessional finance to channel to
providers, risk guarantees
• Governments
e.g. policy, regulatory and market
development, capacity-building

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Sarah Best
2016
2. International public climate finance
for decentralised energy access
Note: Climate finance figures are based analysis of the Climate Funds Update (CFU) database, which covers public finance
for all major international climate funds

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Sarah Best
2016
Decentralised energy access: climate finance
provides 0.2% of additional investment needed
The estimate of USD 23 billion is from World Energy Outlook, IEA 2011

6. Unlocking public finance for decentralised energy access 6
Sarah Best
2016
Use of 5.6 bn climate finance for energy – mainly
middle-income countries and utility-scale projects

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Sarah Best
2016
Funding instrument: Preference for loans (to
utility-scale projects in MICs)

8. Unlocking public finance for decentralised energy access 8
Sarah Best
20163. Key barriers to flow of finance to
decentralised energy access
General barriers (for all finance)
• High risks (perceived, actual)
• Investor returns and short-termism
• Investment size and transaction
costs
• Policy and regulatory environment
• Shortage of business models or
quality plans
• Political preference for large-scale
Climate finance barriers
Preference for loans versus
grants
Approaches of financial
intermediaries
Priorities of funds’ results
frameworks

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Sarah Best
2016
Possible solutions to help channel finance
1. Improve targeting of Climate Funds
• Earmark funds for decentralized energy
• Adjust design features — eg risk appetite, results framework
• Get the right balance of loan and grant funding
2. Strengthen national enabling environment
• Use public finance to support policy and regulatory reforms
• Strengthen institutions managing climate & energy finance in LICs
3. Channel finance through “aggregators”
• Mechanisms to overcome inefficiencies of project-by-project funding, eg
intermediary to pool funds (IDCOL) or aggregate consumers/projects (big data)
• Can provide holistic market-building or business support services

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Sarah Best
2016
4. Tanzania: Gov’t and development
finance for decentralised energy
Current status:
~ 15-20%
electrification
~ 4% access to non-
solid fuels for cooking
Government target is
to achieve 75 per cent
electrification by 2035

11. Unlocking public finance for decentralised energy access 11
Sarah Best
2016Limited Tanzania government funding for
decentralised energy relative to utility-scale

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Sarah Best
2016
Development partner energy funding in
Tanzania also skewed to large-scale

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Sarah Best
2016
Biggest funders of decentralised energy
in Tanzania: DfID, AfD, EU and WB

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Sarah Best
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What’s the decentralised energy
access financing gap in Tanzania?

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Sarah Best
2016
5. Final thoughts: key public finance priorities
for leveraging private sector – or filling gaps
• Reaching domestic providers
(companies, NGOs and social
enterprises)
• Engaging domestic financing
sources (banks, MFIs, savings
groups, consumer assets)
• Reaching the poorest people
Mobisol:
80W panel + 3 lights =
$46 downpayment + $14/month
Poverty line in TZ =
spending < US$17/month

16. Unlocking public finance for decentralised energy access 16
Sarah Best
2016
Contacts
Sarah Best, IIED
sarah.best@iied.org
Ben Garside, IIED
Ben.garside@iied.org
References
Rai, N, Best, S and Soanes, M
(2016) Unlocking climate
finance for decentralised energy
access. IIED, London.
http://pubs.iied.org/16621IIED/

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Sarah Best
2016
Discussion
1. What are examples and opportunities for
‘aggregation’ to channel finance into lots of
small enterprises and projects?
2. How can we address risks associated with
financing SMEs, especially domestic SMEs?
3. How can climate finance (international,
national, local-level) address finance and other
barriers to investing in energy access?