How blended finance helped to keep energy supplies flowing during COVID-19

Most start-ups fail before their fifth year, and in emerging markets they face an even steeper climb. It’s more difficult yet to be a social enterprise, working to deliver services to last mile customers living in fragile countries. Throw a global pandemic into the mix and the margin of error evaporates altogether.

Take Easy Solar, an off-grid solar company providing clean, reliable power to 550,000 customers in Sierra Leone and Liberia. When the COVID-19 crisis hit, the fast-growing business faced a triple-whammy: supply disruptions meant stock outages and lower sales; lockdowns meant many customers could no longer make payments; and frozen capital markets made it impossible to bring in more investments.

“We mostly focused on keeping the lights on for our customers by sending them free days of energy ahead of full lockdowns, but we faced a very tight cash situation which had the potential to affect staffing and business continuity,” said Easy Solar CEO Alexandre Tourre.

Easy Solar is just one example of the hundreds of social enterprises that make up the energy access industry — a sector that has delivered affordable, renewable energy to 470 million people living beyond the grid. Before the pandemic, the sector had been booming, with a six-fold increase in investment over the last decade to what is now a $1.75 billion market.

The virus-induced economic crisis put this progress at risk, threatening off-grid households’ newfound access to electricity, as well as slowing down progress towards access for nearly 800 million people still waiting for energy. Ultimately, the crisis endangers the sector’s ability to achieve Sustainable Development Goal 7 (SDG 7) — universal energy access — and the many other SDGs that depend on energy access.

It also left the dozens of investors and donors who have backed this burgeoning industry wondering what could be done to help safeguard progress.

An unprecedented partnership of public and private investors, led by Acumen and the CDC Group, stepped up to lead a sector-wide coalition to help energy access companies in sub-Saharan Africa and Asia weather the global recession. The result was the Energy Access Relief Fund, which is part of the World Economic Forum’s COVID Response Alliance for Social Entrepreneurs action agenda and aims to ultimately marshall $80 million in relief capital. While the size of the fund matters, the blended structure is just as important. Especially in moments of crisis, using the right type of capital to address market failures is critical.

Members of the Alliance, including Acumen and private foundations like the IKEA Foundation and the Shell Foundation, joined government donors, and multilateral and development finance institutions to build an innovative blended finance structure designed to meet the liquidity needs of energy access companies so they could continue operations, maintain customers’ access to off-grid energy, and protect the sector’s growth.

Today, with the first close of $68 million in commitments, the Energy Access Relief Fund will begin the process of providing much-needed liquidity to up to 90 energy access companies. For Easy Solar and the few other companies that received early support ahead of the Fund’s launch, the impact is clear for both the company and the customer: “While we're still going through a difficult period, the loan from the Energy Access Relief Fund allowed us to continue operating at full speed while preserving employment,” said Tourre.

In stabilizing the sector, the Energy Access Relief Fund demonstrates the power of global partnership and teaches us three key things:

The sheer scale of the problem meant that no one funder could have pulled this off, so it was essential to find a way to bring in various funders and various types of capital. One size does not fit all. Commercial funds are great for scale, but are less flexible and have return expectations. Philanthropic funds can be put in place quickly, but are the most coveted and therefore hardest capital to raise. Concessional debt, on the other hand, holds out some chance to return capital while still offering borrowers the rates they need as a bridge to recovery.

Furthermore, investors need to have flexibility to bend their processes and rules to make things happen quickly. By blending different types of capital along with a portfolio guarantee, the Fund can leverage philanthropic grants to de-risk senior investors and crowd in more investment.

Nothing about building the Energy Access Relief Fund was easy. It involved managing competing objectives, as grantmakers seek leverage, speed, and inclusivity while senior investors focus on risk mitigation. Raising precious grant capital to de-risk the fund, just as aid budgets were shrinking, was tough — as was finding investors willing to accept 0% or 1% returns. Despite the challenges of balancing the competing requirements and constraints of different types of investors, it was critical that everyone work towards a common goal, in this case, protecting the progress on SDG 7.

The pandemic reminds us that we are all interconnected and share the same fundamental needs. No matter where we live, each of us needs basic services, access to information and the ability to connect with our loved ones. For each of these, we need energy. During lockdowns, almost a billion people faced staying at home without it — with no power to work, to charge a phone, or even to turn on a light.

This collaborative effort was born with the companies and customers in mind. Capital providers, technical assistance partners, and data collectors rallied to assess company and customer needs, while working in parallel to design the necessary financial instruments and technical support. With pre-existing infrastructure in place for rapid surveys and data collection through partnerships with SEforAll, GOGLA, EnDev, AMDA and 60 Decibels, it was possible to quickly assess what companies and consumers needed most.

Energy access companies that were already operating on razor-thin margins in tough markets continue to struggle with disruptions wrought by COVID-19. The Energy Access Relief Fund isn’t a silver bullet, but it plays a vital role in keeping this important industry on track. As important, it’s a demonstration of what’s possible when the public and private sector come together to deploy innovative financial tools and blended capital.