Ikea and Rockefeller foundations pledge $1B to seed distributed clean energy in developing nations

The funding seeks to empower 1 billion of the estimated 2.5 billion who lack access to reliable electricity.

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Billions of people across the world lack access to reliable electricity, or any electricity at all. A $1 billion pledge from the Ikea Foundation and The Rockefeller Foundation seeks to change that by seeding investment in off-grid clean energy solutions for up to 1 billion people in developing countries.

Monday’s announcement commits the two philanthropies to donate $500 million apiece to fund a public charity this year, aimed at seeding investment in off-grid and minigrid projects. The program will be incubated through RF Catalytic Capital, a public charity created by The Rockefeller Foundation last year.

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The partners hope their seed investments will help de-risk investment of an additional $10 billion from international development organizations, as a first step in encouraging a boom in private investment. That could help bring carbon-free and reliable electricity to 1 billion people, according to the groups.

Roughly 800 million people around the world lack access to electricity, and another 2.8 billion are served by unreliable power grids, according to the United Nations. Many of these people live in India, Africa and Latin America, where the two foundations have identified projects ready for investment.

By fronting investment in solar power and other distributed energy projects in countries that might otherwise build fossil-fuel power plants to expand electricity supply, and by replacing the diesel generators relied on by many of the billions living with unreliable power grids, the partners hope to reduce carbon emissions by 1 billion metric tons over the next decade.

Our partnership will unlock the financing and resources that are essential to provide clean, reliable electricity that improves the lives and livelihoods of people everywhere,” Rockefeller Foundation President Rajiv Shah said in a Monday statement.

An expanding off-grid sector faces growing pains

A $1 billion commitment is a sizable boost to the off-grid sector, which has seen private investment grow to approximately $2.1 billion over the past decade, according to research from Wood Mackenzie. Much of that investment has come in the past few years, as global energy companies have sought opportunities to serve an underserved market with increasingly low-cost solar and battery technologies.

Off-grid solar providers and developers such as Powerhive, Husk, Starsight and Yoma Micro Power have raised tens of millions of dollars from investors, and others have been acquired by energy companies, as with Engie’s 2017 acquisition of Fenix International, a home solar provider in Africa, in 2017.

But the off-grid and minigrid business faces multiple barriers to successfully serving its target markets. A 2019 report from a consortium called the Mini-Grids Partnership indicated that of the more than $2 billion pledged by development finance institutions to support minigrid build-out since 2012, only 13 percent had successfully been applied to real-world projects.

The largest disconnect between funds pledged and projects completed is in sub-Saharan Africa, the report found. The Rockefeller Foundation has signed commitments for development from the World Bank’s International Finance Corporation and the U.S. International Development Finance Corporation, according to news reports.

Commercial off-grid and minigrid developers also struggle to assess risk and secure credit to finance projects in these markets. In April, Washington D.C.-based Nithio raised $30 million to expand its data analytics platform to assess default risk for solar customers in sub-Sarahan Africa, with the goal of dramatically expanding investment in solar systems for up to 270 million people.

At the same time, many developing countries in Asia, Africa and South America suffer from a combination of poor service and what’s known in the utility industry as nontechnical losses,” which includes customer energy theft and corrupt business practices on the part of utility personnel and government agencies. In some regions, these nontechnical losses can add up to nearly half of total electricity sales. Companies such as SparkMeter are raising funds to supply low-cost metering technologies to these power grids, as well as to serve the off-grid market.

(Image: IKEA DELFTby Gerard Stolk (vers l’automne) is licensed under CC BY-NC 2.0)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.