How to deal with gridlock in climate finance? Walk
Funding for Africa’s green economy is stuck much like traffic in New York, where global leaders failed to make much climate progress at the UN General Assembly. Perseverance and innovation are the answer
1.🚁 Heli view: Africa must stick to its guns on climate funding
African leaders presented their newly-minted green agenda on the global stage in New York in the past week. But the reception was underwhelming. What now?
Is the continent on the wrong track… and if so, what’s the alternative?
Presentation: It was a perfect charm offensive. African leaders at the UN General Assembly showed eloquence and resolve to shift global climate action.
They plugged the recently agreed Nairobi Declaration – in perfect unison.
Past talk of victimhood was replaced with a focus on economic opportunity.
African resources shone as key for the planet’s climate (forests, minerals, etc).
Beyond generalities: African leaders also made clear the Global North should invest on the continent for climate action to benefit the whole planet. That includes:
New, expanded for-profit funding
Changes in global debt structures
Taxation of the biggest emitters
The reaction: Nobody thought this would be easy. But the response was more disappointing than expected.
Replenishment pledges for the Green Climate Fund fell short of promises (see chart above - note US, France and Japan).
Observers see little chance of much movement before COP 28.
The background: Africa’s bumpy week has much to do with politics in far-off places.
What matters: Despite setbacks, African leaders are building on strong momentum. That should give them confidence to stick with their course.
In New York, they featured prominently and as equal partners.
Quietly and otherwise, they are creating all the right alliances.
The new World Bank president has been highly supportive.
Embracing the popular Bridgetown Initiative will yield benefits.
The White House remains engaged, regardless of Congress.
In sum: The foundation for climate-related financial reforms have been laid. This should result in more funding for climate-positive growth in Africa, eventually.
2. Climate ventures raising more than $200m
Major investors have long complained that it's hard to deploy capital in Africa's green economy because the ticket sizes are small. But that may be changing.
Two weeks ago we published a list of 20 companies seeking investments of up to $200m. The strength of the list was a sign of confidence in the market.
But a few companies are raising amounts even higher than $200m. Today we feature three of them.
In the pipeline: The mega-raisers have one thing in common – they're all more or less energy-related.
Raising amount: $250m in debt, equity and carbon-offset finance
Use of funds: Distribute one million electric cookstoves to urban, low-income, grid-connected households in six countries within two years
What has changed: Carbon finance allows cookstove makers to scale
B. Husk Power:
Raising amount: $500m in debt and equity
Use of funds: Build 2,500 mini-grids within five years in Sub-Saharan Africa
What has changed: As mini-grids become more bankable, the sector becomes attractive to PE and infrastructure funds
Raising amount: >£30bn in debt and equity
Use of funds: Develop renewable power generation in Morocco plus a 3,800km subsea transmission line to the UK to eventually supply 8% of national needs
What has changed: Surging power prices in Europe could turn Africa into a viable power exporter
In a nutshell: Globally, the investment climate remains difficult. But boards and advisers in Africa's green economy are confident enough to take big asks to investors. That suggests growing optimism at least among some operators.
Reality check: Only 3% of global climate finance currently finds its way to Africa, says the Climate Policy Initiative. And an ask is not yet a get.
3. Time for a rethink: How to max the humble mini-grid
What’s new in the pipeline for climate ideas? We’re continuing our occasional series of innovation spotlights.
The focus: Today, we’re looking at how African mini-grids can benefit from ambitious thinking.
This is based on work done by CrossBoundary’s Mini-grid Innovation Lab. For a profile of the lab’s leader, see the next story below.
A. Second-life batteries: Castoffs from the Global North power many African markets. Take cars and clothes. Most are sold used. What might that look like for power units?
After three years, many batteries are no longer efficient enough for electric vehicles but can still be used in stationary situations.
Second-life power units from cars could be integrated into mini-grids; that may reduce unit cost by up to 40%, especially as the EV market grows.
B. Modular mini-grids: Scaling de-centralised systems with use over time is hard. Expansions are rarely seamless. Hence, most mini-grids are overbuilt and under-utilised (30%-40%). Capital is locked up needlessly. How to fix this?
Studer is working on a smart inverter that makes it possible to add batteries of different ages to a single system. One can then expand over varying distances.
Okra Solar has developed mesh grids for 4-5 households (software balances loads). Mesh grids sit in between solar home systems and mini-grids. They can connect users at the periphery of mini-grids, which is otherwise too costly.
C. Sub-metering: Perhaps not all power uses should be charged equally. Tariffs differentiated within an account would make it possible to subsidise climate-friendly uses. Current meters don’t allow this.
PowerPay is developing a chip that makes it possible to track consumption at the appliance level.
Developers could offer competitive tariffs on different usages. Watching TV? Pay the full rate. Switching from charcoal or gas to an electric cooker? Pay less for the power used.
Industrial applications are also under consideration. An example: Reducing the cost of power for a grain mill when switching from diesel to electricity.
4. Profile: Climate leaders with answers
Join CrossBoundary’s innovation lead on the search for renewable energy solutions
“ENERGY, to me, is the enabler of everything,” says Tombo Banda, the 38-year-old Malawian mechanical engineer and sustainability innovator. “You need energy for education, you need energy for health, you need energy for business. Without energy, you’re not going to do any of those things.”
Banda’s mantra could be a family motto. Her father trained as a mechanical engineer and ran their local water board in Blantyre before setting up his own business. When he saw that his daughter was good at maths and physics, he suggested she try mechanical engineering too. “It’s all about solving problems,” he told her. From a young age, he was taking his children around water and treatment plants on weekends. “We were always travelling about the place looking at random engineering things.”
Her father had a succession plan in place. So after studying engineering at Imperial College in London, Banda returned home and joined her father’s firm, working mostly on building services. Within a few years, though, she started getting itchy feet. Malawi didn’t seem big enough for what she wanted to do. When a colleague recommended a masters course at Cambridge University in engineering for sustainable development, she jumped at the chance.
“I don’t think everyone should aspire to American models of consumption,” she said. “What does it mean to be in a developed country? For me, that means you have access to your basic needs: you have energy, you have education, you have health, you have basic infrastructure. You can get from A to B. You can live with dignity… How can you expect communities to thrive without the most basic things they need?”
Based in Nairobi, Tombo Banda is now a managing director at CrossBoundary, a mission-driven investment and advisory firm. She leads its Mini-Grid Innovation Lab, Africa’s first R&D fund exclusively focused on testing new business models for mini-grids. It’s designed to close the gap for the 600m+ Africans who do not have reliable power.
Electrifying Africa has always been an expensive proposition. The answer is technology – and thinking outside the box. Mini-grids are a big part of the answer. Appliance financing, allowing consumers to buy income-generating machinery on credit, is too.
With much of the technology already developed, Banda believes the emphasis should be on reducing the cost of rolling it out – and advising governments on subsidies for electrification. She reckons CrossBoundary’s innovation lab might close by 2025. “It’s not rocket science,” she says. “It just needs rolling out.”
For her own part, Banda has an eye on e-mobility. “This is a gamechanger on the continent,” she says. “Most of our population is under 16. If we get it right, they’ll think of internal combustion engines as being like landlines. ‘What is this noisy, polluting thing?’” Getting electric vehicles connected to mini-grids will also boost income generation. “We need to figure out what we need to put in place for a quick transition. That’s my kind of problem.”
5. Media monitoring
More carbon: Zimbabwe amends its carbon revenue sharing scheme.
Resilient agriculture: Google announces the launch of a research centre for climate-smart agriculture in Africa.
In pole position: Several African countries are tracking to become leaders in hydrogen, and capacity is getting closer to overtaking solar in Africa.
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Thanks to the Green Rising team for putting this together.