Energy Transition

Solar power could provide energy for the world’s poor. Here are 5 ways to pay for it

Rebuilding lives for the poor and vulnerable with solar power

Rebuilding lives for the poor and vulnerable with solar power Image: REUTERS/Mohammad Ponir Hossain

Odd Arne Sjåtil
Managing Director and Partner, Boston Consulting Group (BCG)
David Young
Managing Director and Senior Partner, Boston Consulting Group (BCG)
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Energy Transition

This article is part of: Race to Zero Dialogues
  • Bringing energy access to poor and vulnerable communities is not impossible and solar power offers solutions.
  • With coordination, concerted efforts from all stakeholders, and the right financing mechanisms, displaced people could move from a world where energy insecurity and poverty are the norms to one where they can start to rebuild their lives.

Tapping solar power to end energy poverty

It’s hard to overstate the challenges facing the 600 million people in Africa who lack access to electricity—including over 20 million who have been forcibly displaced. Without light sources, for instance, schoolwork is limited to daylight hours, hampering educational achievement. When small home businesses cannot operate after dark, it drastically curtails their income potential.

For displaced people, these limitations come on top of a variety of other hardships, from property loss to physical violence and persecution. In short, access to energy is a vital economic lifeline. And based on our research, it could be provided—both sustainably and cheaply—through solar energy.

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Africa’s energy challenge

In many Sub-Saharan African countries, the majority of citizens lack access to electricity. These same countries also host sizeable displaced populations, making it tough to start working towards achieving Goal 7 (access to affordable, reliable, sustainable, and modern energy for all by 2030) of the United Nations’ Sustainable Development Goals (SDGs). Moreover, SDGs in other areas such as education, increased income, health care, innovation, and economic growth also depend on access to energy.

The arguments for scaling up access to solar power are compelling. First, solar energy is increasingly affordable (costs have fallen five times in the past decade) and more viable for poor communities than the current alternative: unhealthy and polluting diesel generators, which are expensive to operate and add to carbon emissions.

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In BCG’s collaboration with NORCAP, a global provider of expertise to the humanitarian, development, and peace-building sectors, we identified a suite of solar solutions that can work for vulnerable and displaced communities. These range from replacing fossil-based generators with solar power to enhancing mini-grid systems in displaced and host communities for households, services, and industry.

Why private investment is needed to end energy poverty

Re-thinking financing models for solar energy will be critical. By creating multi-year grants, donors and financial institutions could meet the capital-intensive demands of early-stage clean energy projects and fund new energy delivery models. But with concessional capital leaving an annual gap of $15 billion in funding for acute humanitarian needs, an alternative source of finance will be essential: private investment capital.

This brings its own challenges. These include uncertainties over policy and economic stability, weak capacity to operate effectively, poor transparency on performance and project governance, and—in the case of refugee camps—questions over how long the camp will operate, given government policies and priorities. Complex protectionist regulations with lengthy approvals processes can make solar power projects involving smaller companies unviable.

These problems are not insurmountable. However, financial innovation can create "investable" projects that can deliver a practical risk-return profile to investors.

How to facilitate private investment

1. De-risk investment

  • Providing catalytic first loss capital
  • Securing uptake commitments from humanitarian organizations to guarantee the purchase of a minimum viable quantity of power
  • Offering loan guarantees that enable solar energy companies to access credit at reasonable rates
  • Designing insurance against early termination in the event that a displacement community is shut down earlier than anticipated

2. Cross-sector collaboration

As they navigate what for them is the new world of private finance, international organizations and NGOs must pool their expertise and partner with financial institutions to identify and structure investable opportunities on the ground—and ensure investors are aware of those opportunities.

3. Enabling solar power regulation

Governments must design regulatory and refugee policies that can attract investors to solar energy solutions.

4. Public-private collaboration

Solar companies should collaborate with international organizations to ensure their services meet humanitarian needs.

5. Longer term systemic investments

In the longer term, incentives must also be created to enable private capital to make systemic investments in everything from health and education to employability and microfinance—investments that can enhance resilience, promote economic development, thereby helping to prevent the conditions that prompt migration in the first place. In the meantime, however, there is an urgent need to direct more private capital towards developments that can improve lives and support livelihoods for displaced and underserved communities.

Ending energy poverty is possible by scaling access to solar energy
Ending energy poverty is possible by scaling access to solar energy

Innovative projects are already showing the way. For example, the CrossBoundary Energy Access Fund is working to connect 34,000 rural households and small businesses in Africa to mini-grids, using blended finance and innovative financing structures to unlock private capital.

And the Global Plan of Action is driving a collaborative agenda across multiple agencies to provide sustainable energy solutions in displaced communities, with the enabling of private capital as a key pillar.

BCG is helping these and other innovations to gain momentum through the Humanitarian and Resilience Investing Initiative, convened by the World Economic Forum to harness private capital in enhancing resilience in fragile contexts.

Bringing solar energy access to vulnerable and poor communities is not impossible. With coordination, concerted efforts from all stakeholders, and the right financing mechanisms, displaced people could move from a world where insecurity and poverty are the norms to one where they can start to rebuild their lives.

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Related topics:
Energy TransitionDavos AgendaFinancial and Monetary SystemsDavos Agenda
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