By
Suleiman Jasir Al-Herbish
Director-General, OPEC Fund for International Development (OFID)
Member, AFED Board of Trustees
Energy poverty is at the heart of OPEC Fund for International Development’s mission. Today, all OFID financial windows contribute to the alleviation of energy poverty. Indeed, OFID has developed a wide spectrum of financial tools ranging from grants to market-based instruments.
Presently, our financial tools are able to contribute to various types of energy projects ranging from a simple solar lamp or an efficient cook-stove to a mega power plant. Just this year, OFID has added a new energy facility to its Grants window that will support small-scale energy projects, many of which will be in poor rural areas.
Most recently, in November 2011, the UN Secretary-General announced his initiative “Sustainable Energy for All”. The first objective of this plan is to ensure universal access to modern energy by 2030.
To mobilize key stakeholders and encourage cooperation with this initiative, the Secretary-General formed a High Level Group. These 33 leaders from business, finance, governments and civil society have been tasked with the preparation of an Action Agenda to be presented at the Rio + 20 Summit in June 2012. I am honoured to be a member of this High Level Group.
As we have seen, there are many initiatives under way that are focusing on different aspects. OFID welcomes all of these initiatives since it will help raise the awareness of the importance of addressing Energy Poverty and ultimately will make a real difference on the ground. We are of the opinion that the multiplicity of initiatives is a good thing as long as the goals are well defined. Synergies, harmonisation and common objectives should be sought.
Providing energy access for all by 2030 is an objective that we should all subscribe to.
Moreover, as it was pointed out at the Oslo Conference last October; all energy sources and technical solutions must be utilised to reach the goal of universal access in a sustainable manner: economically, socially and environmentally. I think that it should be recommended to the International Energy Forum (IEF) energy ministers to support the both ideas that I just mentioned.
Speaking as a practitioner in development, let me make some observations.
First, in order for all the initiatives to work on the ground, we definitely need a sustained political will backed by a pro-energy access planning process.
Our practice is to always keep our partner countries in the driving seat when it comes to prioritization of sectors and strategies of development.
The issue here is that, many poor developing countries still do not put a high priority on energy access in particular for rural areas. On the ground this lack of political will and prioritization translates into inappropriate regulatory environment especially concerning regional projects development, a clear lack of bankable projects and a low absorptive capacity regarding energy projects. We would like to see this situation changed.
The required sustained political will should be demonstrated by the inclusion in the National Plans and Poverty Reduction Strategy Papers of explicit targets for energy access services and power supply capacity. Ministries, public utilities are therefore expected to attach the highest priority to extending energy access. Nothing less will be sufficient to achieve progress towards our objectives.
OFID experience regarding this very point is that today we are entering a new pro-active phase. While preserving and reinforcing the ownership by concerned governments, OFID would like to assist them to translate their renewed willingness to fight energy poverty by implementing appropriate policies, developing projects and increasing their absorptive capacity. Indeed, recently we supported with a grant a UNDP plan to strengthen national level capacity for planning of energy related development activities in five sub-Saharan African countries (Tanzania, Kenya, Uganda, Benin, Togo and Sierra Leone). And just two weeks ago OFID and The Arab Bank for Economic Development in Africa (BADEA) agreed to support selected sub-Saharan countries to emphasize energy access in their respective national development strategies by financing studies for policy change and studies aiming at identifying relevant pipeline of projects.
My second, observation is that the success of any initiative will rely on the implementation of successful business models.
Regarding the poor strata of the population living with low income in peri-urban areas or widely dispersed over large areas: paradoxically, the poorer they are, the more they pay for energy. A key barrier limiting wider access to modern energy services by the poor is the lack of affordable, appropriately designed options to finance installation and purchase costs (the upfront costs). The market-based approach cannot finance these investment costs, the challenge is to scale up business models (innovative schemes) allowing the poor to access energy in a reliable, affordable and sustainable way. That is business models able to break the vicious circle of energy poverty.
In this regards, in addition to classic concessional financing of energy power plants, OFID has participated recently together with the Shell Foundation in a successful project involving small scale innovative financing schemes that allow the poor to have access to off-grid solutions such as solar lamps in remote areas of Kenya and Tanzania. Regarding end-user financing, we are of the opinion that all means aiming at reaching the neediest should not be neglected.
Unfortunately, there is no ‘one size fits all’ solution: in order to break the vicious circle of energy poverty, strong government involvement with pro-poor policies is necessary. In the field we can observe successful approaches such as:
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Developing Efficient Public Private Partnerships and supporting energy SMEs by Microfinance;
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Creating appropriate tariffs with specific structures to ensure sustainability;
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Providing targeted Subsidies that really reach the needy and subsidies aiming at financing the start-up cost of connection;
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And wherever possible reliance on renewable energy in order to reduce the running cost.
Our experience has shown that two conditions are necessary for the implementation and successful sustainable business models: Strengthening or empowering local financial institutions to finance more energy projects, and developing local capacity building.
This commentary is based on remarks delivered at the opening of Second Symposium on Energy Poverty, hosted in Vienna in November 2011 by OPEC Fund for International Development (OFID) in cooperation with the International Energy Forum (IEF).
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