A year ago, we announced our Water-Energy-Food Nexus programme as an approach to further Africa’s sustainable development. Within the program, with the support of Enel Foundation, we carried out “RE-thinking Access to Energy Business Models”, a study that analysed electrification projects, and integrated and innovative business models, in rural areas of Sub-Saharan Africa. From the analysis of more than 20 projects, of the local regulatory framework and of the financial context, a rich panorama of experiences has emerged.
Innovative kinds of partnerships between the private sector and NGOs, public sector and local communities are allowing WEF Nexus-based projects to spread. However, their replicability at scale is hindered by business models that rely on donations and subsidies, and by a high perceived risk by traditional developers and investors.
Integrating investments in renewable energy with investments for the supply of complementary goods and services (such as ice for the preservation of food, electronic devices, technical assistance, and so on), and in closely related sectors (agriculture, breeding, etc.) is strategic to diversify revenue streams, support cash flow and strengthen the socio-economic sustainability of projects. In fact, integrated projects are the ones with better results in the analysis, both financially – with better returns on investments, and in terms of sustainability – with a positive footprint on the community.
Complementary activities clearly have a cost that developers and investors must take into consideration, assessing risks and benefits. On the one hand, identifying local needs and investing in customers and communities makes it possible to stimulate the growth of energy demand, so as to increase expected revenues and improve the economic sustainability of the project. On the other hand, the increase in capital expenditure brings with it greater financial risks.
In a financial market that is increasingly attentive to the achievement of the Sustainable Development Goals and to medium- and long-term impact indicators, projects that integrate a water-energy-food approach have a competitive advantage in accessing economic resources. Thanks to financial instruments that enhance the impact and local development, it is possible to reduce investment risks and bridge the gap, still present in the project cash-flows, to ensure the bankability of the projects.
There is great enthusiasm in this growing and innovative sector. On the other hand, the process of maturation of the rural electrification market, and in particular that of mini-grids, still needs targeted support policies and the right kind of finance. Governments, financial institutions and development agencies are therefore called upon to collaborate with the private sector to ensure clear and transparent regulatory frameworks, and to promote financial instruments that accelerate investments in this sector, still too niche compared to the 600 million people who risk to remain without electricity for a long time.
RES4Africa strongly believes that promoting integrated models and innovative partnerships between the players in the water, energy and food sectors is essential to ensure clean energy to millions of people and give positive energy to the economic revolution of a continent that will have to keep pace with demographic growth processes and unprecedented urbanization.