EU drive energy access through ‘blending’ grants

Thursday April 30th, 2015 - Smart Villages

The European Union has unveiled plans to support new energy schemes in Africa. The partnership with Paris-based private equity firm Astor Capital Partners will support around 20 SME’s involved in off-grid and decentralised energy production.

The Electricity Access Fund aims to invest €55 million over five years, with €10 million of the fund’s capital coming from the European Investment Bank. The organisers hope the investment will lead to access to electricity for around one million low-income people in sub-Saharan Africa.

The approach of supporting development through conventional financing has a number of possible advantages.  According to EUobserver newspaper:

The project is the latest example of the EU “blending” development grants with finance from private sector investors to pay for large-scale investments. This approach is being employed in east Africa to finance renewable energy and energy efficiency projects, for geothermal energy installations, and in particular for the 310 MW Lake Turkana Wind Project.

Speaking to the newspaper, Erik Habers, the EU’s head of development in Kenya said “Innovative use of financing has the potential to unlock the benefits of private investment and build electricity supply for millions of people and small businesses. We can use development aid to absorb risk, build investor confidence and accelerate economic growth for a wider number of people.”

Much of the global focus on energy access now centres on off-grid approaches and technologies such as solar home systems and micro- generation infrastructures. However, these models are often seen as hight-risk by investors. By using grants to de-risk these projects,  commercialisation of these technologies can be supported in a sustainable and scalable manner. The importance of de-risking investment will be the subject of an essay by Tobias S. Schmidt, due to be published by Smart Villages this Summer.

It is worth to remembering that €55 million is a tiny amount in terms of the investment required. The World Energy Outlook has estimated that nearly $400 billion (€350 billion) will be needed to achieve universal access to electricity across Africa alone by 2030.