“Finance for electricity and clean cooking remains dramatically short of what is needed to meet SDG7 and deliver universal access on time. Concessional development finance for electricity access declines by 7%. Sub-Saharan Africa, with an already low share of commitments, is falling even further behind.” These are just some of the discouraging findings that emerged from the latest Energizing Finance report, published in November 2018 by Sustainable Energy for All (SEforALL) in partnership with the Climate Policy Initiative.
With just under 1 billion people still lacking access to electricity and 3 billion without access to clean cooking alternatives, it is crucial that this reality check is heard by donors and recipient governments, development finance communities, investors and private sector companies aiming to mobilize greater funds to ensure clean energy access for all. As concerted international policy and finance responses to achieve the SDGs evolve, strengthen and gain momentum, so must the systems for tracking progress toward the goals.
However, during our research for Energizing Finance, we found that multiple working definitions, metrics and indicators are being used to measure progress towards energy access goals, differing from institution to institution.
To this end, a well-calibrated, consistent and credible measurement and evaluation system, and a common set of definitions specifically targeted to track progress towards SDG7 (and other SDGs as well) is warranted.
To better understand these differences, we engaged with several development finance institutions (DFIs). DFIs represent a good starting point as they have had previous success in a similar challenge, developing a harmonized approach to track and report climate finance. The “Common Principles for Climate Finance Mitigation and Adaptation Tracking”, jointly developed by the group of Multilateral Development Banks (MDBs) and the International Development Finance Club (IDFC) in 2015 are now adopted by more than 30 institutions and funds around the world.
The common principles have allowed for more efficient, consistent and comparable tracking and reporting of climate finance among these institutions (IDFC 2018 and UNFCCC 2018). This has contributed to the steady increase in climate-related expenditures recorded since 2015, and improved the availability of disaggregated and more transparent project-level information.
Transparency, in particular, is critical to assessing the effectiveness of public spending on climate change and contribution towards international common goals, such as the goal set by developed countries to mobilize USD 100 billion in climate finance for developing countries by 2020.
Furthermore, DFIs’ common principles have informed the development or improvement of guidelines by other stakeholders, for instance the OECD DAC Handbook on Rio Markers for Climate. This has allowed the common principles to be shared with a much larger group of donor governments and aid agencies—a valuable contribution for those institutions who have less financial and technical capacity to accurately track and report their climate finance expenditures. It would be reasonable to expect similar benefits from developing common definitions and principles for tracking energy access financing by the DFIs.
ADDRESSING THE CHALLENGES
Through our discussion with the DFIs on energy access, we identified two key issues:
The first issue is that there is no single internationally-accepted and internationally-adopted definition of modern energy access (Energy Access Outlook 2017, IEA). To fill this void, international finance institutions have each developed their own, differing working definitions.
The International Energy Agency (IEA), for example, has a binary definition of energy access, defining it as “a household having reliable and affordable access to both clean cooking facilities and to electricity, which is enough to supply a basic bundle of energy services initially, and then an increasing level of electricity over time to reach the regional average.” How a household with reliable and affordable access to either clean cooking or electricity is tracked is unclear.
On the other hand, the Multi-Tier Framework (MTF), developed by the World Bank and supported by SEforALL, measures the level of energy access for clean cooking solutions or electricity provided by energy finance to residential consumers. Rather than using binary measures of energy access (having or not having a household electrical connection or clean cooking solution) that do not consider the quality, regularity or affordability of service, the MTF recognizes that access to electricity and clean cooking is a continuum. Finance is therefore allocated to five “Tiers,” from Tier 0 (no access) to Tier 5 (very high level of access) (Bhatia and Angelou, 2015).
The absence of a common definition generates confusion and leaves room for debate. The following questions are just some of the recurring debates we have encountered through our work tracking finance flows for energy access:
- Should coal and fossil fuel electricity be counted as contributors to energy access or only renewable sources? What is the role of diesel generators in expanding energy access?
- Should just the last-mile applications be counted or all investment into new generation capacity and transmission systems? And how to methodologically define “last-mile” investment?
- Of all the electricity injected into the grid, how much is benefiting households, and how much goes to industry or other sectors?
Common definitions, metrics and best practices to monitor and report finance for energy access are pivotal to facilitate dialogue, coordinate efforts among institutions and mobilize much needed finance.
The second issue we identified is that varying energy access targets exist, which contribute to different energy access performance and impact metrics. Among the reported MDBs, only a few has set specific quantitative energy access investment targets. While different targets may not seem problematic since most institutions share the same overarching objective (universal energy access), the way targets are defined, and the time set to achieve them, influence the speed of progress.
As energy access financing is a cross-cutting category running across multiple areas (generation (including renewable), transmission and distribution, energy efficiency, clean cooking), DFIs use several different indicators to measure impact, including the number of new household grid and off-grid connections created, number of clean cook stoves distributed, and annual expenditures for energy access.
Further, some institutions track financing for projects that only directly result in electricity access and that include indicators on expanded energy access in the project description. Others may also include upstream investments in generation, and transmission and distribution, leading to improvements in existing energy access.
Developing a common understanding, tracking and reporting framework is crucial to expose trends that might otherwise be missed due to lack of comparability and ensure greater collaboration between institutions to scale-up financing for energy access.
Since 2017, the Energizing Finance series has offered a space for international institutions to discuss and coordinate on these themes. We will examine this further in the next edition of the Energizing Finance report, planned for publication in the fall of 2019.
This blog was originally published by SEforALL.