Financing Renewable Energy in Developing Countries: Business Models and Best Practices

The World Bank has reported that an estimated 1.29 billion people in 2008 lived below $1.25 a day, equivalent to 22 percent of the population of the developing world. Almost over three billion people live on less than $2.50 a day and at least 80% of the world population lives on less than $10 a day. The relationship between income poverty and energy poverty is also ubiquitous. Today, there are 1.4 billion people around the world that lack access to electricity, some 85% of them in rural areas. Without change in current policies, by 2030 the number of people without electricity will drop only by 200 million. Sub-Saharan Africa continues to remain one of most the electricity deprived areas of the world. Further, the number of people relying on the traditional use of biomass is projected to stay same by 2030.

However, traditional finance mechanisms are not applicable in rural areas. Rural populations are spread out often in small pockets with dispersed locations and hence conventional grid is difficult to extend to such areas. As a result of low population density, difficult terrain, and low consumption, rural electricity schemes are costly to implement (Tomkins, 2008, p. 48). Project financing is virtually not possible since project cash flows are not adequate. In addition, low rural incomes can lead to problems of grid affordability and maintenance. Also, long distances mean greater electricity losses and more expensive customer support and equipment maintenance. Thus rural electrification projects have often required subsidies to make them financially viable (Tomkins, 2008).

The resources future publications take a deep dive into one of the most comprehensive studies on financing of renewable energy in developing countries. Download the full publication here and if you are interested in executing small energy projects, feel free to contact Resources Future at info@resourcesfuture.com