UNDP launches challenge to boost innovative finance for small-scale clean energy in developing countries
Posted July 21, 2022
UNDP’s Climate Aggregation Platform (CAP) launched today the CAP Financial Innovation Challenge to crowdsource innovative financial aggregation structures and models for small-scale, low-carbon energy assets in developing countries. With funding from the Global Environment Facility (GEF), the first CAP Financial Innovation Challenge will select up to five projects in East Africa, including at least one in Uganda and one in Rwanda. Successful applicants will be awarded up to US$ 40,000 to develop the proposed innovations.
Small-scale, clean energy solutions such as off-grid solar photovoltaics or mini-grids are key to providing reliable energy access to communities that are not connected to the electricity grid or in places where the grid is unreliable, while generating social, economic, and environmental benefits. For under-served communities, access to reliable electricity brings a range of development benefits, from farmers improving their crop yields through solar-powered irrigation and health facilities in villages no longer relying solely on diesel generators, to evening classes for children, and safer, well-lit streets and roads for women and girls.
Although important progress has been made, new financial mechanisms and sources of funding are still required to close the investment gap to achieve Sustainable Development Goal 7 by 2030 – universal access to clean, affordable, reliable energy –, with for instance annual investment in access to electricity needs to be increased to US$ 35 billion and $25 billion for clean cooking.
Within the innovative finance ecosystem, financial aggregation has great potential to mobilize capital for distributed renewable energy and other small-scale, low-carbon energy solutions. Financial aggregation is a process in which multiple energy assets, projects or companies are bundled into portfolios, which then receive financing from investors based on future cash flows. It can reduce transaction costs and risks for investors, and help address or counter investment barriers and unlock new sources of finance for small-scale clean energy. However, a recent report by UNDP and Climate Bonds has shown that the potential of financial aggregation for small-scale clean energy investments remains untapped.
The CAP Financial Innovation Challenge 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 clean energy in developing countries. It also aims to facilitate the transfer of know-how and innovative solutions that can help overcome energy related development challenges in developing countries and contribute to the achievement of the Sustainable Development Goals, notably SDG 7 on sustainable energy and SDG 13 on climate action.
“While the market is still nascent, financial aggregation could one day be a game-changer for distributed renewable energy companies said Eduardo Appleyard, CAP Project Coordinator, UNDP. “With the CAP Financial Innovation Challenge we want to support the development innovative solutions that could lead to financially closed transactions in the near future and eventually be scaled up and replicated. Through this process we want to spark a conversation about financial aggregation grounded in real-life examples to help demonstrate its potential and better understand market barriers and opportunities.”
The CAP Financial Innovation Challenge is open to solutions involving financial aggregation at different levels, such as bundling individual assets, projects, or companies, and to other innovative aggregative models, including innovative carbon credit solutions, renewable energy certificates, innovative models for receivables financing, digital aggregation platforms.
The CAP Financial Innovation Challenge is accepting applications until 31 August 2022, 12pm (EAT) and is exclusively for projects that will be implemented in East Africa. It is open to international applicants that fall in either of these three categories:
“Buy-side” actors, including commercial and development banks, impact investors, financial intermediaries, crowdfunding platforms
“Sell-side” actors, including project originators or developers and energy companies;
Other relevant entities, including NGOs and civil society organisations, government agencies, digital solutions providers, consulting firms, research institutions, industry associations, and credit rating agencies.
The CAP is one of UNDP’s Sustainable Energy Hub initiatives to catalyse partnerships, innovation, finance and knowledge to help countries transform their energy systems.
About UNDP’s Sustainable Energy Hub: UNDP is the leading United Nations organisation fighting to end the injustice of poverty, inequality, and climate change. Working with our broad network of experts and partners in 170 countries, we help nations build integrated, lasting solutions for people and the planet. UNDP's Sustainable Energy Hub is an all-of-UNDP initiative. It aims to catalyse partnerships, innovation, knowledge and finance to support countries transform their energy systems for them to be low-carbon, resilient, secure and inclusive. Learn more at undp.org or follow @UNDP
About the Climate Aggregation Platform (CAP): Part of UNDP’s Sustainable Energy Hub, the Climate Aggregation Platform is a Global Environment Facility (GEF) funded project implemented by UNDP, which, in partnership with the Climate Bonds Initiative, seeks to promote the scale-up of financial aggregation for small-scale, low-carbon energy assets in developing countries. The project aims to advance and raise awareness for innovative solutions to market barriers for financial aggregation – with the goal to increase access to low-cost financing for low-carbon energy. In so doing, the project can improve the lives of people in developing countries, bringing about affordable, reliable, and clean energy. Learn more at www.undp.org/climate-aggregation-platform