The United Nations Development Programme (UNDP) will support the development of seven innovative financial aggregation models targeting a variety of clean energy solutions ranging from off-grid solar, mini-grids and e-mobility to clean cooking, across various East African countries.
These solutions were competitively selected as the winners of the UNDP Climate Aggregation Platform Financial Innovation Challenge, which was a global call for applications launched in July 2022 by the Climate Aggregation Platform (CAP), a UNDP initiative to promote the scale-up of financial aggregation for small-scale, low-carbon energy assets in developing countries. Funded by the Global Environment Facility, the CAP is a flagship initiative of UNDP’s to support the structuring and deployment of innovative business models and financial mechanisms to accelerate energy access and the clean energy transition.
Through this innovation challenge, UNDP aims to foster the development of innovative financial aggregation structures and models that can help increase the availability and reduce the cost of financing for low-carbon energy in East Africa. And, in doing so, help close the investment gap to achieve universal energy access.
“We are excited to support the development of such innovative and pioneering financial solutions for clean energy,” said Riad Meddeb, Director of UNDP’s Sustainable Energy Hub. “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 of 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 have access to affordable, reliable energy and the opportunities it brings.”
Distributed renewable energy solutions have been identified as the least-cost, fastest option to rapidly close the energy access gap in Africa by 2030. However, scaling these solutions requires large upfront public and private investments, which are currently lacking due to a series of barriers, including perceived investment risks.
Recent research by UNDP shows that financial aggregation holds great potential in enabling these upfront large-scale investments. It could notably help reduce the mismatch between distributed renewable energy funding needs and investor requirements, and in turn increase investments in such solutions. Yet, to date, there are few examples that have turned this potential into reality.
Financial aggregation instruments are complex, and their successful implementation depends on a favorable enabling environment. In that sense, the market is still nascent and faces a range of barriers that need to be addressed if financial aggregation is to be widely employed and scaled.
For that reason, through the CAP Financial Innovation Challenge, UNDP aims to support solutions at the design stage, so that novel financial aggregation structures and models can be developed that can lead to financially closed transactions in East Africa, in the near future.
In response to the call, UNDP received many applications from around the globe, with very diverse and interesting innovations, and targeting different energy sub-sectors and countries in East Africa – While the call for applications was open to applicants from any country, supported solutions are to be developed in view of being deployed in one or multiple developing countries in East Africa, with a special focus on the CAP’s two pilot countries, Rwanda and Uganda.
The seven solutions below were competitively selected as the winners of UNDP’s Climate Aggregation Platform Financial Innovation Challenge. Each of them involves a different approach to financial aggregation to help unlock new sources of financing for the clean energy sector, including climate finance. These target different sub-sectors, from off-grid and on-grid solar, mini-grids, productive use appliances, e-mobility to clean cooking, and could be deployed across different countries in East Africa including Rwanda, Uganda, Kenya, Tanzania, Malawi, Ethiopia, Madagascar, 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 minigrid 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.
UNDP will provide an award of up to US$40,000 to each of these innovators to develop a Feasibility Study for their Innovative Financial Aggregation Structure or Model. UNDP will also promote the supported innovations within UNDP and to a broader audience across its network.