The latest in a series of research papers by the Moving Energy Initiative (MEI), Innovative Financing for Humanitarian Energy Interventions explores the increase in resources and funding needed to improve the access of displaced people to modern and sustainable energy services.
Written by Yaron Cohen, Financial and business development consultant and Laura Patel, Programme Manager, Energy 4 Impact for MEI, the paper argues that a significant increase in funding is required to improve the access of displaced people to modern and sustainable energy services, the ability to leverage private sector expertise and additional sources of financing needs to be explored. Developing appropriate financing models and mechanisms, to support the unique challenges particular to the humanitarian sector, could encourage further investment and smarter utilisation of donor funds.
Here is a summary of the key points:
- In settings that host displaced and refugee communities, energy can act as an enabler for improved healthcare, education and access to clean water. More efficient sources of energy can also save money that can be reinvested in life-saving interventions. A range of challenges exist that inhibit the uptake and effective management of cleaner energy solutions in displacement settings. These are magnified by a lack of available and appropriate funding.
- The current funding gap is significant. In many cases, involving the private sector (both enterprises and investors) is viewed as a way to accelerate delivery of sustainable energy solutions, leverage additional capital, efficiency and expertise, and adopt more sustainable and market-based approaches.
- Displacement settings are an extreme example of complex and unpredictable operating environments. Traditional approaches to the financing of energy access will not be supported by the risk/return characteristics of this market opportunity, so alternative structures are needed.
- Such structures can include mechanisms such as grants, guarantees, ‘results-based financing’ and ‘impact bonds’. These blended financial instruments should aim to leverage first losses – whereby, in the case of default, the first loss is taken by the ‘impact-first’ investors, or guarantors, thereby fully or partially protecting ‘finance-first’ investors.
- Given the specific constraints of displacement settings, any financing mechanisms at present are likely to fall between the categories of providing ‘more efficient aid’ and ‘more efficient aid through markets’. They are likely to constitute a transitional step from grant-making towards the use of commercial investment vehicles.
- While a number of financial mechanisms could be applied to attract private-sector engagement, most remain theoretical, with few being implemented extensively or at scale. Where such financial mechanisms have already been used, access to relevant data is poor, especially in circumstances where the desired outcomes were not achieved.
- The Moving Energy Initiative completed feasibility work into the concept of an energy humanitarian fund and found that, while a need for this type of facility has emerged, it sits in a difficult position between energy access, climate and humanitarian funding sources. Key donors are needed to drive forward innovative financing vehicles and further testing of these mechanisms, in order to generate market data and evidence for further iterations and additional investments.
The MEI is a collaboration between Energy 4 Impact, Chatham House, Practical Action, the Norwegian Refugee Council (NRC), the Office of the United Nations High Commissioner for Refugees (UNHCR) and the UK Department for International Development (DFID). It is working to achieve access to clean, affordable and reliable energy among displaced populations.