Informing the Financing of Universal Energy Access

12 September 2011

The UN Report

Report cover: Clean Energy Progress Report: IEA input to the Clean Energy Ministerial

How much would some developing countries have to invest in their energy infrastructure to provide energy access to everyone on the planet? At least five times the current levels of investment according to the report titled, Informing the Financing of Universal Energy Access: An Assessment of Current Flows. The United Nations Industrial Development Organization’s report delivers a high-level overview of energy investments and financial flows in the developing world and provides insight into the long-term effects that those investments will have on the energy poor.

Parts of the developing world must increase investments to at least five times current levels in order to provide universal energy access by 2030 according to a recent United Nations’ report. The study finds that in countries like Kenya, where less than 20% of the population has access to grid-based energy, increased investments in energy have less of an effect on the energy poor due to high costs. The findings of the report also show that there is a downward tendency in energy related foreign direct investment into developing countries in recent years. The issues outlined in the report illustrate some of the challenges associated with meeting the United Nations’ goal of universal energy access by 2030.

Summary for Policymakers

The following are some useful conclusions that the researchers have drawn based on the findings of the report.

"The gap between current and required [financial] flows is enormous in several cases. Securing political commitment and putting in place effective policy and regulatory frameworks are crucial elements to improve the investment climate for energy access. These include policies that are technology or sector specific, remove existing market distortions (e.g., fossil fuel subsidies), and work across sectors (education, health, water agriculture, industry), as well as financing mechanisms to increase funding along the project spectrum (e.g. pre-feasibility studies, feasibility studies, seed capital, debt, equity, and insurance)."

"A useful area of further investigation would be to improve the understanding related to the share of those ‘catalytic’ investments that is expected to be provided by the public sector."

Key Findings

  • Large investments are required to provide full access to energy services.
  • 2.8% of total gross fixed capital formation (GFCF) was energy related in 2000.
  • Niger’s energy related GFCF has been negative over the past ten years while South Africa’s energy –related GFCF increased exponentially. This has resulted in South Africa often being quoted as a success story in rapidly increasing the rate of access to electricity.
  • Foreign direct investment grew steadily in both developing and developed nations until the financial crisis of 2008.
  • Financial flows into developing countries do not have “inertia” and vary year to year based on individual projects.
  • The current financial flows into developing countries indicate that large investments must be made from international sources in order to meet the United Nation’s goal of universal energy access.
  • Investments for a county’s electrical infrastructure typically come from domestic rather than international sources, so new types of investments will be required.
  • The funding gap is at least a factor of 5 less than that required for universal energy access.
  • Currently the crude data that is currently available presents an obstacle to refining the analysis further.